Mark McLaughlin CTA (Fellow) ATT TEP outlines potential difficulties with 'in-specie' pension contributions.

Introduction

It is not uncommon for assets to be transferred to pension schemes instead of cash. However, are assets an acceptable form of pension contribution to a registered scheme for tax relief purposes?

HM Revenue & Customs' Position on in specie Contributions

HMRC guidance categorically states in the context of employer contributions:

“In-specie contributions are not allowed. The legislation only permits monetary contributions” (RPSM05102035).

However, the same guidance then goes on to indicate when the contribution of an asset may be acceptable. It broadly states that there must be:

• A ‘clear’ obligation on the employer to contribute a specified monetary sum (e.g., £10,000), creating a ‘recoverable debt obligation’.
• A separate agreement between the scheme trustees and employer to pass the asset to the scheme for consideration.
• Acceptance by the trustees that the cash debt may be offset against the consideration payable for the asset.

In terms of member contributions, HMRC states that contributions to a registered pension scheme must be a monetary amount (e.g., cash, cheque, direct debit, bank transfer) but then says; “…but what is allowed is for an individual to agree to pay a monetary contribution by way of a transfer of asset(s).”

Stamp Duty Land Tax & Stamp Duty

However, does an in-specie pension contribution as described by HMRC create a stamp duty or SDLT liability? For example, if the chargeable consideration for a land transaction consists of the satisfaction of a debt due to the purchaser, the debt amount is treated as chargeable consideration. A similar rule applies for stamp duty purposes (e.g., in relation to shares).

The position is not altogether clear, and the CIOT has requested clarification from HMRC on this point. However, based on HMRC’s view that a cash debt must be created for tax relief to be available for a pension contribution which is satisfied by the consideration payable for the asset, it seems likely that stamp duty land tax or stamp duty liabilities would arise.

Date of Payment

A further issue regarding pension contributions in specie is in establishing the date on which the contribution is ‘paid’ for tax purposes. HMRC’s view is understood to be that the time of payment is when the debt set-off actually takes place (i.e., when the pension scheme receives the asset value to set off against the pension contribution ‘debt’. For a land transfer, this would be the completion date, or for a share transfer this would presumably be when the stock transfer form was dealt with.

Further issues potentially arise. For example, even if the in-specie pension contribution is acceptable, there are limits to the amount of tax relief available. In the case of companies there is also the question of the timing and extent of tax relief from business profits.

The above article is reproduced from 'Practice Update' (November/December 2009), a Tax Newsletter produced by Mark McLaughlin Associates Ltd. To download current and past copies, visit: Practice Updates.

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