Stamp Duty on In-specie Contributions of Property
This article was written by Rowanmoor Pensions Technical Services Manager Phil Clarke and first published in Investment Week on 4 June 2007.
A contribution to a pension scheme need not always be in cash. Contributions can also be made by the transfer of any asset such as a property.
Following the advent of Simplification, some SIPP and SSAS operators no longer accept in-specie contributions. This is because regulations imply in-specie contributions are no longer allowed, as contributions have to be expressed as cash sums.
Regulations do not, however, prohibit a scheme member or any sponsoring employer making an in-specie contribution. The member or employer agrees to make a contribution to the scheme, which creates a debt. This debt can be settled by contributing a property to the value of the debt. The property will need to be independently valued to determine the amount of the contribution and to ascertain whether it is allowable in full for tax relief purposes. As this transaction is a contribution it must also satisfy the wholly and exclusively test.
Prior to 6 April 2006 such "transfers" of property were exempt from Stamp Duty as the only consideration for the transfer was the acceptance to provide future pension benefits. There was therefore no amount passing on which the duty could be assessed. Also, it was not regarded as a debt upon which duty could be paid. HMRC therefore took the view that such transfers took place for no chargeable contribution and were therefore exempt from tax.
The post-simplification approach does mean the transaction will attract stamp duty. The amount payable will be between 1% - 4% depending on the value.