In Specie Contributions
The pension industry has been left in a confused state on HMRC’s stance on in specie contributions, which have become a more widely-used mechanism over the last few years.
Hartley’s understanding of HMRC’s required process for in-specie contributions:
- Complete contribution form
- Must not mention in specie contribution
- The intention must be to make a cash contribution
- Pension provider creates an irrevocable debt against the client for the amount on the contribution form
- The debt is formed by the client signing a deed to create a recoverable debt obligation
- The client then offers an asset to repay the debt
- Pension provider/trustee will consider the asset and formally accept it as repayment of debt
- The asset re-registered into the pension fund
- The asset must be valued on day of registration
- If the asset has a lower value than the debt an extra cash contribution must be paid to make up the difference
- If the asset has a higher value than the debt, either a refund is made or extra contribution form must be completed.
Hartley’s View
The current situation presents a number of risks to both the client and the advisor and the process does not provide any transparency. The process starts by the client seemingly not able to tell the pension provider that they wish to make an in specie contribution. HMRC expect a client to accept a debt against themselves without knowing if an in specie asset would be accepted to repay the debt! The overall process needs improvements.