SIPPCHOICE Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 10 March 2018 |
| Neutral Citation | [2018] UKFTT 122 (TC) |
| Date | 10 March 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0122 (TC)
Judge Gething
Rebecca Murray of counsel appeared for the appellant
Charles Bradley of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Whether relief for pension contributions by way of assets in satisfaction of debt – Whether there was a debt.
The First-tier Tribunal allowed the taxpayer's appeal against HMRC's decision to refuse income tax relief on contributions into a registered (SIPP) pension scheme: there was an obligation to make a contribution, discharged by a transfer of shares, which constituted a “contribution paid” within the legislation.
The taxpayer (“S”) was the trustee and administrator of the Sippchoice Bespoke SIPP (“the SIPP”). In March 2016, C applied to join the HFMC Self-invested Pension Plan, which was part of the SIPP. C also executed a SIPP Contribution Form, under which in a section of the Form titled “In specie contribution”, C:
- declared that he proposed to make a net contribution of £68,324 to the SIPP and that this notification constitutes an irrevocable and binding obligation to make this contribution;
- acknowledged that he was creating a legally binding and irrevocable obligation to make the specified contribution and that it will not be possible to change my mind even if, for whatever reason, I am unable to proceed with the asset transfer that was originally envisaged.
Following subsequent request by S to C, one week later, for confirmation as to how C would settle his debt to S, C replied that he would make an in specie transfer of a specified number of shares in HFMC Limited, an unquoted company. In that reply, C acknowledged that the contribution being made “will be the value of the [shares in question]. I understand that the value may change and that there are rules that must be adhered to with regards change in value”. His reply went on to say:
I agree if the value decreases I will pay a monetary amount into the scheme to bring the contribution up to the value quoted in my first letter. I understand that you as Administrator are legally bound to pursue this payment from me.
There was also a mechanism to deal with overpayment. S in fact wrote back to C advising him that a valuation report of 31 December 2015 indicated that the shares in question had a value of £68,323.97 and that C had to make a payment of 3p to settle the debt of £68,324.
HMRC Pensions Tax Manual (at ) explained that “contributions to a registered pension scheme must be a monetary amount. However, it is possible for a member to agree to pay a monetary contribution and then to give effect to the cash contribution by way of a transfer of an asset or assets”.
S made a claim for relief from income tax at source in respect of the contribution made by C into the SIPP with a net value of £68,324. C was one of four members of the HFMC Self-invested Pension Plan who made contributions to the SIPP; the others' circumstances were agreed by the parties to be identical to C's, and their outcome would therefore be governed by the decision in C's case.
HMRC denied the claim for relief, S contested that decision and included the claim in its Annual Relief at Source claim (on form APSS 106), which HMRC also refused. S appealed to the Tribunal.
The judge said that S submitted that the concept of “paid” should be presumed to include not only a transfer of money, but also the discharge of a debt and a transfer of money's worth. Alternatively, if payment could not be said to include a transfer of assets, it should be presumed to do so where the assets are transferred in satisfaction of a money debt or other commitment to pay a specified sum of money. There was though no indication in the legislation that “contribution paid” in FA 2004, s. 188(1) and (2) should be confined to cash payments.
HMRC submitted that the expression “contributions paid” in FA 2004, Pt. 4, Ch. 4 should be given their natural meaning which would require the Tribunal to find it meant a “money” payment. By contrast, Pt. 4, Ch. 3 expressly referred to the possibility of payment including “a transfer of assets and any other transfer of money's worth”. Further, FA 2004, s. 195 specifically contemplated a transfer of shares by employees where the shares had been acquired pursuant to an approved share scheme. These provisions indicated that a transfer of shares would not otherwise be a contribution paid to a scheme.
As regards the question of a transfer of assets in satisfaction of a debt, HMRC submitted that in this case there was no contract under which there was a binding obligation on C to transfer shares in such satisfaction because there was no debt. There was a mere promise to pay. If there had been a legally binding obligation in contract or by document under seal to pay a sum of money and C had transferred the shares to the SIPP in satisfaction of that obligation, HMRC accepted that relief would have been available.
In the judge's view:
- Although she considered that the declaration in the Contribution Form on its own could not create a legally binding obligation, nevertheless taking the paperwork in its entirety, she considered the parties intended to create legal relations and there was a legally binding obligation on C to make a contribution of £68,324. A legal obligation on C to make a contribution of a monetary amount existed even though C intended to settle the debt obligation he had created by transferring the shares in question to S.
- This accorded with the Guidance given by HMRC in the Pensions Manual at PTM 042100.
- HMRC's assertion that, as payment in Pt. 4, Ch. 3 was widely defined to include a transfer of assets and other money's worth, that was an indication that the expression contribution paid where it appeared in Ch. 4 should be confined to cash payments, was in her view flawed. And in her view too, the market value rule in FA 2004, s. 195 was simply to put the position of employees under SAYE and incentive plans beyond doubt.
- Nor could Hansard Reports or Explanatory Notes to the Finance Bill 2004, as argued for by HMRC, be adduced or considered relevant.
- As a legally binding monetary obligation to make a contribution of £68,324 had been created by C which was discharged by him by the transfer of the shares in question to the SIPP together with a cash payment of 3p, C should be given relief from income tax in respect of a contribution paid by him of £68,324. The meaning of contribution paid was wide enough to cover a transfer of assets in satisfaction of a debt as occurred in this case. The fact that C's intention was always to satisfy the monetary obligation with a transfer of the shares when he completed the Contribution Form could not affect the availability of the relief for genuine contributions paid to a SIPP.
Accordingly, pursuant to its powers to vary the decision of HMRC in this matter, the judge allowed S's appeal in full.
It is, on the face of it, slightly perplexing why HMRC took this case. It seems the taxpayer sought to follow the HMRC Pensions Manual guidance, on creating a debt against which a transfer of assets is made, and no tax avoidance appears to have been involved. But at the same time one can see how important it is to draft the “Contribution” paperwork carefully, and that the Manual guidance itself repays careful re-reading.
By finding that this was a case of “transfer of assets in satisfaction of a debt”, the judge did not, in the event, need to address head on whether this key language in FA 2004 – “contributions paid” – was wide enough to include, without more, a straight transfer of the shares into the SIPP.
[1] The issue in this case is whether contributions made by four members of a Self-Invested Pension Plan (“SIPP”) were “paid” within the meaning of section 188(2) Finance Act 2004 (FA 2004) and therefore qualify for relief from income tax at source, as claimed by SIPPCHOICE Limited (SIPPCHOICE) in its annual claim form. The facts and circumstances and the issues pertaining to the four members are identical save for the amount/value of the contributions. For simplicity Counsel for SIPPCHOICE referred me to the documents relating to Mr Marcus Carlton (“Mr Carlton”) only and HMRC did not object to referring only to Mr Carlton's documents. For simplicity and brevity therefore, I refer only to the facts and circumstances of Mr Carlton but this decision applies to all four members.
[2] In the period 6 March to 5 April 2016 SIPPCHOICE made a claim for relief from income tax at source in respect of a contribution with a net value of £68.342.00 made by Mr Carlton to the SIPPCHOICE BESPOKE SIPP which is constituted by a Trust Deed and Rules. The Trust had been declared by SIPPCHOICE Limited on 6 April 2009. HMRC denied the claim for relief. SIPPCHOICE contested that decision and included the denied claim in its Annual Relief at Source claim (on form APSS 106). HMRC decided to refuse that claim. SIPPCHOICE appeals against that decision.
[3] The recitals to the Trust Deed indicate that:
- SIPPCHOICE as Provider wished to establish a personal pension scheme which provided benefits to enable the scheme to be a registered pension scheme under Part 4 of the Finance Act 2004. The benefits are listed in section 150 FA 2004 as benefits on retirement, death, reaching a particular age, onset of serious ill-health or incapacity or in similar circumstances.
- SIPPCHOICE also agreed to be the Trustee of the Scheme. The Scheme was to be known as the SIPPCHOICE BESPOKE SIPP.
[4] Under clause 2 of the Deed SIPPCHOICE agrees to be the first Administrator of the Scheme and to administer the Scheme per clause 3(a) in accordance with the provisions of the Trust Deed and the rules set out in the first and second schedules to the Trust Deed, referred to as the Scheme Rules and the General Rules respectively but together referred to as the...
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