In-specie Contributions
10-08-2007
From 6th April 2006 (A-day), HMRC have allowed “in specie” contributions to be made into a SIPP and attract tax relief as a result. Her Majesty Revenue & Customs (HMRC) have recently given further guidance and clarity as to how the process works.
The first stage is for the member or employer to write to the administrator with their intention to make a contribution to the scheme. This contribution must be a monetary amount for HMRC to consider it as qualifying for tax relief purposes. The administrator then creates a legal, irrevocable debt which the member or employer is bound to pay.
It is the responsibility of the member or employer to fulfil the debt and this can be achieved by advising the administrator that a particular asset will be used to settle the debt e.g. property or shares. Where shares are used, there is a danger of the share value falling between the time of creating the irrevocable debt and the actual settlement date of the payment. This will not normally be the case for a property in-specie, as the value of the property should not really change during this time period.
If the value of the asset is less than the debt on settlement, the member or employer must make up the shortfall and it is the administrator’s responsibility to ensure this deficit is paid. If the outstanding amount is not collected in full the balance outstanding may be deemed to be an unauthorised payment and will be subject to tax charges.
On the other hand, if the value of the asset is greater than the intended monetary contribution, the excess can be treated in a number of different ways. Options include treating the excess as an additional contribution, refund of the excess, or returning any excess shares to the individual in the case of share in-specie settlements.
It is extremely important that this process is strictly adhered to otherwise it could result in HMRC disallowing the tax relief due to the member or employer following the creation of the monetary commitment.