Clark

JurisdictionUK Non-devolved
Judgment Date12 September 2016
Neutral Citation[2016] UKFTT 630 (TC)
Date12 September 2016
CourtFirst Tier Tribunal (Tax Chamber)
[2016] UKFTT 0630 (TC)

Judge Roger Berner, Ms Gill Hunter (Tribunal member)

Clark

Michael Jones, instructed by Reynolds Porter Chamberlain LLP, appeared for the appellant

Jonathan Davey QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents

Income tax – Pension scheme – Unauthorised payments charge – Finance Act 2004 (FA 2004), s. 208 – Unauthorised payments surcharge – FA 2004, s. 209 – Scheme to extract funds from a SIPP and to provide member with access to funds by loans and investment management – Whether transfers of funds were unauthorised member payments – FA 2004, s. 160(2).

DECISION

[1] The Appellant, Mr Clark, appeals against a notice of assessment dated 25 March 2014 issued by HMRC for the year ended 5 April 2010 in relation to an unauthorised payments charge and an unauthorised payments surcharge pursuant to Part 4 of the Finance Act 2004 (FA 2004). The assessment, which was a discovery assessment under s 29 of the Taxes Management Act 1970 (TMA), is in respect of an alleged unauthorised member payment by a registered pension scheme within the meaning of s 160(2) FA 2004. The alleged unauthorised payment is in the sum of £2,115,049.68; the sum assessed is the aggregate of £846,019.87, being 40% of the alleged unauthorised payment, and a 15% surcharge of £317.257.45.

[2] The assessment has arisen in relation to certain transactions which resulted in pension funds which were originally held in Mr Clark's self-invested pension scheme (SIPP) with Suffolk Life being transferred to a new scheme, the Laversham Marketing Limited Pension Scheme, and from there, subject to payment of certain fees, to Laversham Marketing Limited (LML) and then Cedar Investment Management Limited (CIM) out of which sums were lent to Mr Clark and funds were placed with an investment management firm, Quilter & Co.

The evidence

[3] We had a witness statement and heard oral evidence from Mr Clark, and considered the available documentary evidence. We found Mr Clark to be a truthful witness, although we harboured some doubt as to whether some elements of his witness statement had been entirely the product of his own work. He came across as a man who had been trying to do his honest best to improve the investment performance of his pension funds, but who had had the misfortune to become involved with an organisation, Aston Court Chambers, whose attitude and operation might fairly be described as unprofessional, a circumstance that Mr Clark now deeply regretted.

[4] Mr Clark is, we find, someone who appreciates the value of processes being undertaken correctly and according to legal requirements. His evidence was characterised by his sense that, having been advised that certain processes had to be adopted to ensure the success of the scheme that had been devised, he would at all times, and until circumstances dictated otherwise, endeavour to follow those processes. As a result, his evidence was at times inclined to be reflective of what he considered ought to have happened, rather than what actually did happen. His own sense of procedural correctness did not, however, reflect the reality of the scheme he had been sold.

The facts

[5] Mr Clark is a retired businessman. He retired from full-time employment in 2000 after having spent 20 years working in publishing. He had, in 1986, co-founded Southnews Plc, a London-based newspaper publisher. He became chairman in 1988. With the assistance of Mr Ross Wheldon, an independent financial adviser who was a family friend of Mr Clark, and his firm R&S Associates, Southnews Plc set up a conventional group pension fund for the benefit of senior executives, including Mr Clark.

[6] In 2000, when there was approximately £3 million in the pension fund, the Southnews Group was sold to Trinity Mirror Group Plc. The pension fund was transferred to Trinity Mirror, but remained a separately identifiable fund. In 2003 or 2004, following certain legislative changes which had resulted in a pensions deficit, Trinity Mirror injected around £4 million into the fund. Its value at that time was some £7 million, of which £3 million was attributable to Mr Clark's own entitlements.

[7] In 2004 or 2005, it became apparent that Trinity Mirror was proposing changes to the pension scheme which would eliminate the requirement for it to make further contributions. As a result, and with the assistance of Mr Wheldon, two SIPPs were established for Mr Clark, one with Suffolk Life in the amount of £2,115,000 (the Suffolk Life SIPP) and another, with Scottish Equitable, in the amount of £600,000 (the Scottish Equitable SIPP).

[8] Subsequently, Mr Clark became concerned at the returns being produced by the SIPPs, and in 2007 he discussed this with Mr Wheldon. Mr Clark's aim was to become more involved in the management of the funds. He particularly wished to have access to the funds in order to invest, principally in the London residential property market. This latter wish was driven by two factors. One was that his son, a chartered surveyor, and another contact in the property business, could introduce him to investment opportunities with significantly higher returns that those expected from the SIPPs; the other was that Mr Clark had, in his individual capacity, a £3 million capital loss which he wished to offset against capital gains. He hoped therefore to be able to borrow the pension funds to invest in his own capacity. He considered that such a loan would have advantages over traditional bank lending in that he was likely to get a faster decision on a loan, and interest on the loan would accrue to the pension fund rather than to a lending bank. Mr Clark understood, however, that in order to access the funds in this way they would first have to be moved into a vehicle that would permit the investment in London residential property.

[9] There is a distinction here between access to the funds and involvement in the management of the funds. We accept, and we find, that Mr Clark had both objectives. He appreciated that his desire to offset his capital losses necessarily meant that part of the funds would have to be made available to him, by way of loan, so that he could acquire assets in his own capacity. In addition, however, he was looking to have a closer involvement in the management of funds, short of ownership.

[10] A further reason why Mr Clark was looking to borrow from the pension funds rather than seek bank finance was that the type of residential property he was considering would not, he considered, have been suitable for traditional bank lending. The properties were typically on short-term leases of around 15 years. Mr Clark explained, and we accept, that these properties could not represent security for a loan; they were not mortgageable and were, in his words, totally unbankable. That would give rise to a higher rate of interest, which would flow back into the pension fund.

[11] At this time, and because he was not himself a tax expert, Mr Wheldon introduced Mr Clark to Aston Court Chambers International SA (Aston Court). In its Wealth Management Report prepared for Mr Clark and his wife dated 26 November 2008, Aston Court described itself as a specialist boutique providing innovative commercial, taxation and asset protection solutions to the challenges faced by businesses and business people in today's world. It promised to coordinate an assignment with a number of associated entities and consultants, including legal counsel. It highlighted its low profile and the location of its main office in Switzerland as providing protection and comfort for its clients, referring in particular to legal professional privilege and client confidentiality.

[12] The Wealth Management Report referred to a number of solutions, only one of which, the Pension Transfer Plan, had any relevance to the immediate position of Mr Clark. The Report stated the following as Mr Clark's objectives:

5.1 Under UK pension legislation you have a variety of options as to how you take benefits but, once you reach 75 these options change and for the vast majority of people they then are required to purchase an annuity. You are very keen to avoid this requirement.

5.2 In addition to this you wish to use the value of these assets for one or a number of commercial functions allowed by statute and, incidentally to protect the wealth you have established from potential future creditors, for yourself and future generations. This can be achieved by placing your wealth in a safe environment as recommended in the following solution.

[13] The Report then described the Pension Export Plan (although the heading was Pension Transfer Plan, and we find that it was the Pension Transfer Plan that was being described), as follows:

8.71 ACC constructs a bespoke international commercial trust for your situation.

8.7.2 ACC arranges for the trust to incorporate the underlying Management Company.

8.7.3 You are installed as director of the Management Company and signatory on the Management Company bank account.

8.7.4 The Management Company incepts a new qualifying pension plan (NQPP) for the director(s).

8.7.5 NQPP requests the transfer to it of the Non-Protected Rights value of the UK pension scheme(s) under the European free movement of residency and capital legislation. We cannot apply this approach to Protected Rights funds.

8.7.6 UK pension scheme assets are transferred to NQPP.

8.7.7 ACC arranges for assets to be sold back into the Management Company.

8.7.8 Management Company now controls assets and has unrestricted investment choices under the control of the directorship.

8.7.9 Cash can be accessed in a tax efficient manner.

[14] Although pressed on this matter by Mr Davey in cross-examination, we accept that Mr Clark's own understanding of what was meant by the reference in the Report to tax efficiency was confined to his original purpose in accessing his capital losses. We find that he was...

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4 cases
  • Gareth Clark v The Commissioners for HM Revenue and Customs
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 21 February 2020
    ...Hunter), who heard his appeal over three days in July 2016. By a decision released on 12 September 2016 (“the First FTT Decsion”, [2016] UKFTT 0630 (TC)), they found the relevant facts and determined a number of issues of law, including the question whether the initial transfer of the mone......
  • Gordon and Others
    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 14 June 2018
    ...– Honig v Sarsfield (HMIT) [1986] BTC 205 – TMA 1970, s. 36 – Anderson [2016] TC 05092 – Cooke [2018] TC 06239 – TFEU, art. 63 – Clark [2016] TC 05366 – Danvers v R & C Commrs [2017] BTC 502. The appellant concerns HMRC's raising of discovery assessments under TMA 1970, s. 29 in relation to......
  • Clark v Revenue and Customs Commissioners
    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 26 November 2018
    ...at rates of interest that reflected the lack of security provided by the property acquired. The First-tier Tribunal (FTT) in Clark [2016] TC 05366 had decided that: The trusts of the LML pension were void for uncertainty. It was not a pension scheme or a registered pension scheme, Mr Clark ......
  • White
    • United Kingdom
    • First Tier Tribunal (Tax Chamber)
    • 30 November 2016
    ...of earnings or emoluments to Mr White.[62] One week after this appeal was heard, the judgment of the First-tier Tribunal in Clark TAX[2016] TC 05366 was handed down. That case concerned whether or not certain transactions gave rise to an unauthorised payments charge within Part 4 FA 2004. T......

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