A retired taxpayer with substantial funds in an occupational pension scheme wished to release some funds so he could make investments in the London property market.  He spoke to his advisers and a scheme was devised where the funds would be transferred to a self-invested pension plan (SIPP) and this SIPP was duly set up as a registered pension scheme.  Some rather convoluted transactions took place and the investments were made in the London residential real estate market.  As it transpired the pension scheme was considered void for uncertainty as the paperwork was poorly drafted.  Where any payments were considered unauthorised then a tax charge at 55% would arise.

Before discovering the erroneous pension scheme paperwork, HMRC had issued a discovery assessment as they felt the onward transfer from the new SIPP was an unauthorised member payment and raised a discovery assessment in respect of the later transfer from the second SIPP.  The taxpayer lost his appeals at the First-tier Tribunal and Upper Tribunal and appealed to the Court of Appeal (CoA).

The taxpayer tried to argue that the transfer from the first pension scheme to the second SIPP wasn’t a payment since it was discovered the second SIPP was void for uncertainty.  The CoA dismissed this argument as a transfer of funds from one pension provider to another, even though as it turned out not a registered pension provider was still a payment.  No ordinary person would not interpret the word payment as otherwise, funds were moved from one account to another, a payment.  Even though an equitable charge on the funds arose as a bare trust in favour of the first pension provider was created as the second pension scheme was void for uncertainty this legal point didn’t change the ordinary meaning of the word payment.

The taxpayer’s second argument was that the discovery assessment had been made in respect of the payment from the second SIPP and not in relation to the payment from the first occupational pension scheme and that extending the scope of the assessment was illegal.  The CoA held that letter drafted by HMRC was wide enough in its scope to include the first transfer from the first pension scheme.  The letter detailed that investigations were ongoing.  The taxpayer lost on both grounds.

One of the judges had a particularly scathing comment.  “Both grounds seem to me to be examples of tax litigation as a board game, with large prizes for the winners.  People who pay tax in the usual way are entitled to feel aggrieved when elaborate avoidance schemes such as the one devised by Aston Court in this case succeed.”

The decision can be found at: Clark v HM Revenue and Customs – Find case law (nationalarchives.gov.uk)

Sadly, for the taxpayer he lost significant sums in tax charges, over a £1m, and also paid substantial fees, around £250k, to the scheme advisers before considering the costs incurred in litigating the matter to the CoA.

Please do contact us if you have any questions on pensions and schemes to access those funds, some schemes like the case concluded are not effective and we can advise on a scheme’s appropriateness.