Many financial advisers have advised clients to put business property into their personal pension funds — whether Sipps or Ssas.
The tax advantages of transferring or purchasing a property to be held in the pension wrapper — such as tax-free capital gains and rental income — can save clients significant sums.
Unfortunately, some years ago there was a huge problem for pension property purchases when advisers were led to believe, by many industry leaders, that property could be transferred ‘in specie’ without losing tax exemption.
My efforts to alert the industry have been strongly resisted
They were relying on information from some HM Revenue & Customs (HMRC) officials who had previously suggested in-specie transfers were acceptable.
Rather than borrowing money within the pension fund for the purchase, which was of course possible, in-specie transfers saved transaction and borrowing costs, so clients were told the former was not necessary and they could just do the transfer in specie.
Subsequently, however, the Revenue changed its mind and some pension funds with transactions already completed lost their tax-exempt status.
HMRC claimed, despite its misleading guidance, that it had not agreed in-specie transfers were acceptable, and it pointed to the legislation that strictly required transactions with monetary consideration. This problem resulted in huge costs for some individuals or firms.
Clients or customers who unnecessarily may have paid stamp duty should be contacted and given the chance to take advice on reclaiming overpayments
Pension industry leaders and organisations, recognising that HMRC guidance cannot be relied on, are fearful of any pension property tax issues.
However, if a specialist expert’s legal interpretation of legislation is sought and followed, such issues should not arise.
I hope the industry and advisers will not shy away, but it seems there is a legacy reluctance to touch this area. That is what I found when I recently discovered a possible tax error relating to pension fund property transactions, but in this case the error is tax being overpaid, which clients may be able to reclaim if they are alerted to the situation.
With only four years to make a claim, there’s an urgency to alert potential beneficiaries
Unfortunately, my efforts to alert the industry have been strongly resisted. Perhaps the experience with in-specie transfers has coloured their thinking and deterred them from seizing the chance to potentially achieve thousands of pounds extra for client pension funds, from stamp duty that never should have been paid when the property transaction occurred.
Lack of familiarity
After asking a number of lawyers, I discovered most conveyancing solicitors did not know about this issue. Indeed, of the tens of stamp duty relief types, most solicitors were familiar with only a few; this had resulted in routine legal advice for pension savers to pay stamp duty on commercial properties transferred into their personal pensions.
If a specialist expert’s legal interpretation of legislation is sought and followed, issues should not arise
This potentially erroneous advice ignored the fact property transactions between multiple owners in Sipps or Ssas might have no stamp duty liability.
Most property or pension lawyers seem insufficiently familiar with stamp duty law intricacies applied to partnerships and related-party transactions. It is a complex area requiring specialist expertise.
When a leading firm of stamp duty specialists asked me to look into the matter, I was sceptical such an error could be so widespread. However, after comprehensively studying the legislation guiding stamp duty payments, anti-avoidance rules and partnership provisions, I believe many people may have paid stamp duty unnecessarily if connected parties and multiple owners are involved, as the correct calculation of stamp duty can be zero. With only four years to reclaim the money from HMRC, there seems an urgency to alert potential beneficiaries.
After asking a number of lawyers, I discovered most conveyancing solicitors did not know about this issue
Just as advisers would automatically suggest someone should claim higher-rate relief on their pension contributions to reclaim their overpaid tax, clients or customers who unnecessarily may have paid stamp duty should be contacted and given the chance to take advice on reclaiming overpayments.
This may not apply to every transaction, but there are many circumstances in which a stamp duty expert can identify warranted reclaims. But the reclaim application must be submitted within the four-year window.
Many clients have received stamp duty refunds. I hope more advisers, providers or trustees will give others the same chance for improved pensions.
Ros Altmann is a former pensions minister
This article featured in the October 2022 edition of MM. If you would like to subscribe to the monthly magazine, please click here.
There are two issues raised by Roz here. The first incorrectly refers to in-specie transfers where it should refer to in specie contributions. As far as I am aware, the Government “U-Turn” on their own guidance resulted in the tax relief on the contributions being cancelled, not the loss of the scheme’s tax approved status. This matter is as far as I can see unrelated to the second issued raised: whether or not Stamp Duty Land Tax can be avoided on certain connected party property transactions. Far from being ignored by the industry, AMPS, the trade body for SIPP/SSAS providers is actively in communication with the Stamp Duty technical team at HM Treasury around some of the interpretations which are far from clear.
Dear Martin
I first want to say that I was really delighted that you took this issue seriously, having spoken to so many others who dismissed it citing issues with HMRC guidance on in-specie ‘contributions’ for property transfers. I hope that you recognise there is a difference between HMRC guidance – which cannot be relied upon according to HMRC itself and is only a ‘guide’ – and the position which applies from the legislation itself. The contributions for property transfers being made in specie were not in accordance with the strict legal position, which is why HMRC ultimately ruled against them being permissible, despite having led people in the industry to believe they would be acceptable.
In the case of SDLT, this is not ‘avoiding’ SDLT as you are suggesting, but it seems to me that it is a case of SDLT not actually being due, yet many lawyers and other advisers having failed to recognise this. Indeed, the payment of SDLT was not necessarily required if those conducting the transaction had checked the strict legal interpretation of SDLT rules. The zero rate of SDLT on pension property transactions between connected parties actually stems from anti-avoidance legislation, so it is not correct to call this avoidance. Of course, the SDLT due will depend on circumstances of each case and all I have been trying to say is that members who may have been advised to pay SDLT where is was not actually due, have only up to 4 years to reclaim those payments from HMRC. The longer there is a delay in alerting members to this, so they can if they wish to take their own advice, the more clients are likely to fall outside the 4 year window. There seems to me to be some urgency in this matter. Of course HMRC has an interest in delaying but I have always been looking at this from the consumer interest perspective. Some firms have now been telling SSAS or SIPP members about it, but the position of AMPS has not yet been clarified. Of course, you were a major reason that AMPS has started to take this matter more seriously and I am most grateful.
I can only echo Baroness Altmann’s Comments and state some facts:
1. We approached AMPS in 2019 seeking to highlight the issue – only to have the door slammed in our faces
2. We have undertaken several transactions, before completion of purchase, and received HMRC Clearance on them.
3. So far we have received over 60 refunds of overpaid SDLT from HMRC without any questions, enquiries or assessments being raised after the fact.
4. AMPS has been trying to get clarity – but HMRC have so far demurred on giving an unequivocal answer – why would they when the potential repayments run into 10s of £millions and they don’t want a flood of reclaims.
5. The law is clear and has been in place for over 15 years…it has just been missed by the solicitors and advisers acting for the schemes. This seems to be a good example of behaviour that is wrong staying unchallenged and just becoming habitual, with the complexities of SDLT not being fully understood, other than by experts.
6. There have been persistent claims that pensions are not connected to their contributors and so tax is due. This claim is incorrect and has, in our experience, been rejected by HMRC.
7. Several members of the Bar, and Stamp Duty experts have concurred with our view in published technical articles on the subject.,
8. I do wonder whether the presence of so many of the lawyers responsible for these errors on the AMPS Committee could mean AMPS is not an entirely unbiased source of information on this topic.
It follows that the industry – which keeps adding hundreds of cases per year to the estimated 10,000 overpayments that have already occurred – has not been sufficiently pro-active in alerting members to the possibility of recovering overpayments and giving them the chance to take independent expert tax advice within the 4 year window.