Liberty SIPP

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Samantha Rankine’s quick guide to In-Specie SIPP Contributions

Creating the SIPP “debt”

Since the 6th April 2006 In-Specie contributions have been permitted into a SIPP. This means that assets such as property and shares can be transferred from a member or company into their SIPP. For SIPP members the interesting aspect of in-specie contributions is that they receive tax relief the same as if they were a monetary contribution. The monetary value of the asset will have to be determined and then could be used as part of or all of a contribution.

The most important thing to remember is that an asset cannot just be declared as a contribution as it is not in monetary form. The member or employer must first make an application to make a contribution consequently creating a “debt” before the asset can be transferred into the pension scheme.

This “debt” is expressed in monetary form, e.g., the client says they would like to make a £50,000 contribution into their SIPP.

The client then informs the SIPP administrator that they would like to fulfil this “debt” with an in-specie contribution of assets which have a value of £50,000.

SIPP Administration

Once the member or employer has created a debt they must understand that they are liable to satisfy this debt and if they don’t then they will be pursued by the administrator.

This could cause problems as if the asset to be transferred in-specie turns out to be unacceptable and cannot be transferred into the SIPP the member or employer will still be liable to make payment to fulfil the debt. The administrator must pursue for payment in this situation.

If the debt is not collected in full then the residue will be treated as an unauthorised payment and will be subject to the appropriate charges. If the debt is small the administrator must decide whether it is cost effective to initiate legal proceedings against the member or employer.

The receiving scheme cannot accept the assets before the debt has been made as a monetary amount must be stated first and then a debt created with the asset being transferred to fulfil the debt.

However, the receiving scheme can check the assets before a debt is created as the member will want to know whether the asset will be of an acceptable class before the debt is created. This also helps the administrator on a time cost basis as if the asset is not acceptable and the debt is created they would have to pursue for payment.

HMRC allow the scrutiny of assets before the debt is created.

The SIPP Contribution

The contribution date of an in specie contribution is not the date that the debt was created, it is in fact the date that the asset left the contributor. For example with shares this would be the trade date and with property this would be the completion or the exchanging of contracts. Tax relief cannot be reclaimed until the contribution date.

If an asset is transferred and the value is more than the debt value then the member or employer has paid too much to the pension scheme. If this happens they can either make an additional contribution for that amount or ask for the amount to be returned to them in cash or return in-specie transfer.

However this cannot be used for members or employers to make money out of the in-specie contribution. Therefore this should not be done intentionally or consciously and there should be a clear connection between the monetary amount of the contribution and the value of the assets. The administrator will insist on an appropriate valuation from an independent source.

Apr 9, 2008