White
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 November 2016 |
| Neutral Citation | [2016] UKFTT 802 (TC) |
| Date | 30 November 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Thomas Scott
Frances Ratcliffe of Counsel appeared for the appellant
Laura Poots of Counsel, 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 – Loan made to member of SIPPs from third party – Whether loan was an unauthorised member payment – FA 2004, s. 160(2) – Meaning of payment – Whether made in connection with an investment – FA 2004, s. 161.
The First-tier Tribunal found that a loan made by a third party to a pension scheme member was a payment in connection with a pension scheme investment.
In October 2010, Mr White transferred his pension rights under his employer's occupational final salary scheme to a SIPP. At his request, the SIPP invested in a company described as a single purpose vehicle (Imperium). Imperium lent money to BOH Investments Ltd, which subscribed for ordinary shares in its subsidiary, SKW. On 2 November 2010, SKW made a limited recourse loan, expressed to be repayable out of the proceeds of the pension, to Mr White equal to approximately 25% of the value of the pension savings transferred. HMRC sought to levy an unauthorised payment charge on the amount of the loan.
Two issues fell to be determined:
whether the loan was a payment (FA 2004, s. 161(2)); and
if it was a payment, whether it was made in connection with an investment … acquired using sums or assets held for the purposes of a registered pension scheme (FA 2004, s. 161(3)).
(Both parties accepted that the SIPP was at all times a registered pension scheme and that the loan was not an authorised member payment (FA 2004, s. 164)).
On the issue of payment, the Tribunal did not accept the argument on Mr White's behalf that payment should be given its ordinary meaning (the unconditional transfer of money for the provision of goods or services). Instead, its meaning depended on the context. Applying a purposive approach to s. 160(2), it was considered that the intention was to deter unauthorised payments of any description, including loans. Moreover, looking at the legislative context, s. 175(d) (treating employer loans as authorised payments if they satisfied certain conditions) would be otiose if a payment did not include a loan. The Tribunal therefore concluded that the loan was a payment.
The Tribunal also rejected the argument on Mr White's behalf that a payment had to be made from the relevant scheme investment, as the draftsman had instead deliberately used the phrase in connection with. In their view this meant a causal connection – would either the loan or the investment in Imperium have been made without the other?
As Mr White did not make a witness statement, the Tribunal had to determine this from the facts. Taking into account:
the fact that Mr White had rejected one possible SIPP provider because they were unwilling to invest in Imperium;
the chronology – the loan was advanced on the same day the SIPP made the investment in Imperium; and
the fact that the loan was a limited recourse loan (limited to the amount received, net of tax, from the SIPP)
they concluded that the loan was made in connection with the investment in Imperium.
HMRC have recently targeted a number of pension liberation schemes designed to allow members to access their pension savings by way of loan without triggering a tax charge (see Danvers TAX[2016] TC 04810; Sippchoice Ltd TAX[2016] TC 05217). In this case, the Tribunal declined to consider evidence put forward by HMRC relating to investments made in Imperium by a number of other SIPPs unconnected with Mr White and instead considered only the facts relating to this appeal.
[1] This appeal concerns the application of the pension scheme provisions contained in Part 4 of the Finance Act 2004 to a loan of £75,000 entered into by the Appellant in October 2010.
[2] The issue is whether or not, when viewed in conjunction with certain other transactions, the loan was an unauthorised payment to the Appellant, giving rise to an income tax charge on him of £30,000.
[3] The appeal was at one stage designated as a lead case under rule 18 of the Tribunal Rules. The relevant direction has since been withdrawn.
[4] Since the appeal was made (in 2013), the decision of the First-tier Tribunal in Danvers TAX[2016] TC 04810 has been handed down. Danvers concerns the same technical issues as the appeal, and there are certain similarities between the facts of Danvers and those of this appeal. However, this appeal must be determined on its own particular facts and circumstances. The decision in Danvers, for which leave to appeal has been granted, is discussed further below.
[5] I was provided with several bundles of documents. For HMRC, I also received a witness statement from Mr Alan Bush, a former compliance investigator in the Pensions Schemes Services division of HMRC. Mr Bush attended the hearing and was examined and cross-examined. I found him to be a credible and reliable witness.
[6] Certain of the documents provided by HMRC did not concern Mr White or the transactions which are the subject of this appeal, but rather other taxpayers and other examples of what HMRC refer to as pension liberation schemes. I have considered whether those other documents should be admitted as evidence in this appeal, and concluded that they should not. Even if I were to admit them but give them less weight as evidence than the documents which do relate to Mr White, they would not be sufficiently relevant to the determination of the issues in this appeal, which turn on the particular facts and circumstances of the case.
[7] I received no evidence from Mr White himself. I was not given any explanation for this. Given that one of the two issues in the appeal is, as will be seen below, the extent and degree of any connection between the loan to Mr White and certain other transactions, this means that I have had to determine the factual aspects of that question without the benefit of witness evidence from Mr White.
[8] I make the following findings of fact, described in chronological order.
[9] In the summer of 2010, when the events relevant to the appeal began, Mr White was a pilot with British Airways. He had worked for them since 1990. He had pension rights under the British Airways Pension Scheme (the BA Scheme), which was an occupational final salary scheme.
[10] At some point prior to 12 August 2010, Mr White met with a company called SKW Investments Ltd (SKW) regarding his rights under the BA Scheme. He met with a representative of SKW called John McFadzean.
[11] In early September 2010 Mr White contacted a firm called Michael J Field Consulting Actuaries (MJF) regarding the possibility of using a self-invested personal pension or SIPP to invest in a company called Imperium Enterprises Ltd, which had been incorporated in May 2010 (Imperium). Imperium is described in internal correspondence by Michael J Field as an SPV.
[12] Mr White became a member of the MJF SIPP on 14 September 2010, and was appointed to act as an additional trustee in relation to his own fund on the same day.
[13] On 23 September 2010 Mr White received a letter from Malcolm Pritchard, an independent financial adviser. The letter refers to a recent meeting and states [you] have been asked to see an Independent Financial Adviser by your Pension Trustee in respect of transferring from your final salary scheme. The letter makes it clear that Mr Pritchard is not advising on the SIPP investment, and states as follows:
We discussed all the points and the underlying factors, for yourself being in control [of your pension fund] and cascading wealth to your children are your main concern. There is no doubt as a pure investment the final salary pension is a better option because of the employer contribution, guarantees and benefits available.
[14] On or before 29 September 2010 Mr White confirmed his intension to transfer his pension benefits from the BA Scheme to the MJF SIPP with effect from 1 October 2010. On 29 September 2010 MJF communicated this to the BA Scheme.
[15] A note of a telephone conversation between MJF and Mr White on 30 September 2010 states as follows:
I rang [Mr White] following the discussion with HMRC to tell him I had some concerns and was not yet in a position to say definitely yes to the investment in Imperium Enterprises Limited.
[He] asked me what my concerns were as this was late in the day and he had given BA his notice to opt out. I said that I was still awaiting some details of the company and I was also concerned that the investment managers [of Imperium] BOH Investments Ltd had appeared on a list. He asked me what the list was and I said we had previously been asked to provide information on any members who had invested in this company …
[16] On 5 October 2010 MJF informed Mr White as follows :
… we have taken the decision that we do not want our SIPPs product to be involved in this investment. Our reasons are as follows:
1) As discussed we have noticed that BOH Investments Ltd was on a letter we received from HMRC requesting information on all members that had investments with them. You are aware that this caused me some concern and this was the reason I rang you to delay your request to transfer out of [the BA Scheme] …
2) To date [Imperium] has only raised £1.1 million, your investment would be a significant proportion of this and we do not feel comfortable with the lack of control that we would have over how these funds were invested …
[17] On the same day, 5 October, Mr White decided not to proceed with the transfer from the BA Scheme to the MJF SIPP, and the transfer request was cancelled.
[18] On 7 October 2010 Mr White applied to join a SIPP provided by Pilgrim Trustee Services Ltd (the Pilgrim SIPP). The sum of £515,794 was transferred from the...
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