Inspecie Contributions

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In-specie Contributions

Robert Graves Technical Development
Manager Capita SIP Services AMPS Committee Member
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Background
Pre A-Day consultation with HMRC re definition of
In-specie contribution Share save schemes
separate issue
HMRC definition of In-specie contribution Here
is a portfolio of shares please put them into my
Sipp No tax relief Contributions must be in a
monetary form to qualify for tax relief However,
commitment to make a monetary contribution can be
fulfilled by In-specie transfer of assets

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Background
Issue not covered explicitly within
legislation RPSM05101045 gives a very brief
outline
Number of outstanding questions on practical
issues Different market practice evolving HMRC
contributions audit, including In-specie

AMPS concern for its members Result HMRC meeting
in April
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Background
Meeting objective Understand HMRCs expectations
in what constitutes an In-specie contribution
that will qualify for tax relief
The following is AMPS understanding of HMRCs
requirements verified by HMRC 1st May 2007 5
key headings No comment on whether right or
wrong Will issue Newsletter ASAP Feed any issues
back to AMPS

Dont shoot the messenger!
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1) Can declaring a monetary amount be avoided?
No - Legislation is written in terms of cash
payments and contributions paid Applicant must
first declare the monetary amount they wish to
make as a contribution. Vital next step is the
creation of debt

What is a debt? Matter of law Irrevocable Legally
binding Test Administrator pursue client for
non-payment
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1) Can declaring a monetary amount be avoided?
Standard application form and process unlikely to
fulfil requirements Member must understand they
are legally committing to make the stated
contribution and will be pursued
Potential danger if intended assets are not
acceptable or are significantly lower in value
than expected Property In-specie potentially
dangerous Pre-acceptance of specific assets prior
to creating debt is not acceptable Pre-checking
of permissibility / value OK

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2) When is the in-specie contribution deemed to
have been made?
Not the acceptance date of the application
beware pre funding of tax relief! Is the date of
irrevocable disposal e.g. Stocks and shares date
stock transfer signed Property date of
exchange of contracts

• In-specie requires distinct two phase process
• Acceptance of application creation of debt
• Settlement of the debt
• Combined application and stock transfer form
  dodgy!

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2) When is the in-specie contribution deemed to
have been made?

• Beware timing issues
• End of tax year
• Pension Input Periods
• What if zero income in new tax year / PIP?

Multiple assets could mean multiple contribution
dates Debt created of 75,000 Assets worth
10,000 received 1/4/07 tax year 06/07 Assets
worth 15,000 received 5/4/07 tax year
06/07 Assets worth 50,000 received 6/4/07 tax
year 07/08 Admin. Systems implications!!!!

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3) Consistency with CGT and payment of stamp duty
and valuation basis
Use of trade date as the valuation point
consistent with CGT and stamp duty
calculation Valuation basis Market value i.e.
TCGA 92 Qtr up! SEDOL stock cannot be valued
until following day

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4) What happens where the value of the
transferred assets is less than the monetary
amount?
Client must make up the difference it is an
irrevocable debt. Administrator must pursue the
client for payment No de minimis limit but
reasonable commerciality can be applied E.g. 50
debt outstanding Administrator should request
payment Client refuses to pay Not
commercially viable to invoke legal
proceedings

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4) What happens where the value of the
transferred assets is less than the monetary
amount?
Receipt of the balance payment another
contribution date. Non payment of outstanding
debt may be deemed an unauthorised payment and be
subject to charges Administrators can charge
interest on late payment if they deem it
appropriate and would be normal commercial
practice

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5) What happens where the value of the
transferred assets is more than the monetary
amount?
Example Contribution 10,000 Assets worth
11,000 The scheme owes the member money

• Options
• Return excess shares/assets via reverse In-specie
• Purchase the excess assets i.e. pay 1,000 in
  cash to member as a connected party purchase
• Keep the 1,000 excess as a further cash
  contribution i.e. extension of 2. Above
• Beware Contribution should be commensurate with
  asset value

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Summary

• Must create a legally binding debt
• Clear two phase process
• Create debt
• Settle the debt
• Contribution date receipt of assets
• Beware timing issues
• Under payments must be pursued
• Over payments options

Dont like it do physical sale and
re-purchase!!!
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Next Steps

• AMPS Newsletter very soon
• Please provide feedback to AMPS
• HMRC open to further discussion with AMPS
• HMRC intend to refine RPSM in light of discussions