Will In Specie Tax Grab Affect QROPS Pensions?

The UK tax authority has slammed another nail into self-managed pensions by barring tax relief on in specie investments to schemes with 26 providers.

Thousands of retirement savers are now concerned that the ban will spread to other pension providers.

An in specie contribution allows retirement savers to move property or other assets into a pension instead of converting them into money and contributing the cash to the scheme.

HM Revenue and Customs (HMRC) declined to explain why the tax relief was denied, arguing that to do so could identify individuals.

Instead, the spokesman pointed inquiries towards ‘clear guidance’ that explains how tax relief is applied to in specie contributions.

Disputed valuations

A typical in specie contribution is holding business premises in a pension.

The move to withdraw tax relief for the clients of the 26 providers is suspected to relate to the way some firms have followed HMRC guidance.

The problem is rumoured to involve disputed valuations of unquoted shares or intellectual property.

Many SIPP and SSAS pension schemes accept in specie contributions.

Pension experts are concerned HMRC could ask for tax relief to be returned back to transactions which took place as far back as 2009.

“This is a strong possibility and could have serious financial costs for individuals and pension savers,” said a spokesman for trade body the Association of Member Directed Pensions.

Impact on QROPS

How the problem may affect Qualifying Recognised Overseas Pension Scheme (QROPS) is uncertain.

Pension funds are already tax relieved when they are switched overseas and any dispute over tax relief is between HMRC and the former provider, but the funds are held in the QROPS.

QROPS can also accept in specie transfers from a SIPP or SSAS so the retirement saver is not placed at a financial disadvantage by having to sell assets and then switch the cash to the offshore pension.

If a property is mortgaged, then a sale or refinancing may be required as a UK lender is unlikely to reassign any loan overseas.

Most transfers from a SSAS are likely to have come with advice to retain any property but to convert any other assets to cash before making the switch offshore.