Pensions tax settlement more likely following ruling on ‘IOUs’

Out-Law News | 16 Sep 2022 | 1:57 pm | 1 min. read

A contractually agreed commitment to pay pension contributions into a registered pension scheme at a later date is an arrangement that does not qualify for tax relief, the first-tier tax tribunal (FTT) has said.

The FTT ruling (11-page / 363KB PDF) builds on earlier case law developed in the so-called ‘Sippchoice’ case by the Upper Tribunal and is likely to spur administrators of self-invested personal pensions (SIPPs) to consider approaching HM Revenue & Customs (HMRC) to discuss settlement of tax liabilities arising from ‘IOU’ arrangements, according to tax expert Steven Porter of Pinsent Masons.

In the Sippchoice decision, the Upper Tribunal decided that a transfer of non-cash assets made in satisfaction of pre-existing money debts were not ‘contributions paid’ into a pension. The scheme administrators in the latest case, in a set of factual circumstances agreed by all parties to be very similar to those in the Sippchoice case, sought to argue that the contribution had in fact been paid, not at the time that assets were transferred in, but at the earlier stage of entering into a legally enforceable obligation to pay contributions into the scheme – in a debt arrangement that the parties characterised as an IOU.

This question was decided as a preliminary issue, based on a number of assumed, though not agreed, facts. In the Sippchoice case, the Upper Tribunal stated that a contribution must be ‘money’ whether in cash or another form. In the latest ruling, the FTT therefore asked itself whether the IOU was ‘money’ and concluded that it was not. It considered that the scheme administrator did not have unreserved access to any money at the point the IOU was made, only a right of action against the member. Looking at it from the member’s perspective, the FTT considered that the IOU did not deprive the member of anything until their obligation was honoured later.

This analysis led the FTT to determine that the ‘contribution paid’ could not be treated as having been made earlier in the process. 

Steven Porter said: “Since the Sippchoice decision, many scheme administrators have been reaching settlements with HMRC regarding previous ‘in specie’ contributions to regularise the position of the scheme and its members. This decision of the FTT may well push further providers into the same position. While no formal settlement arrangements have been set out by HMRC, our experience is that they have been receptive to approaches for settlement and will continue to do so.”