While in England and Wales, HMRC has confirmed that Stamp Duty Land Tax (SDLT) is not chargeable on in specie pension fund transfers, the guidance issued to date by Revenue Scotland indicates that Land and Buildings Transaction Tax (LBTT) is indeed payable on such transactions north of the Border.
If this position is confirmed in further guidance due to be issued, then it could have serious negative implications for consumer choice and competition in the personal pensions market.
Land and Building Transaction Tax (LBTT) was introduced in Scotland in 2015 as a replacement for SDLT. As with SDLT, LBTT is payable on commercial and residential land and building purchases and leases where a chargeable interest is being acquired. Whilst many of the rules and processes between the two taxes are similar, there are some instances where HMRC and Revenue Scotland take different - and often opposing - approaches.
'In specie' transfers of commercial property between SIPPs
One such conflict arises in the case of "in specie" transfers of commercial property from one Self-invested Personal Pension provider to another. SIPPs generally operate by way of a pension company who holds the legal title to the property as a trustee for the benefiting pensioner. If the pensioner wishes to change pension providers, the title to the property will need to be transferred to the new provider, who acquires the title in specie – i.e. a direct transfer of the existing assets of the scheme without needing to liquidate them and then purchase them in cash.
In England and Wales, HMRC treats such transfers as being exempt from SDLT, as there has been no exchange of value and the beneficiary of the scheme (the pensioner) remains the same. However, Revenue Scotland have indicated that they are taking a different approach when the transfer relates to property in Scotland.
In a technical bulletin issued in October 2016, Revenue Scotland stated that in specie transfers do give rise to LBTT liability as such transfers are land transactions, whereby the new pension providers assume the liability of the scheme, and such assumption of liability is treated as a debt, on which LBTT is payable.
Revenue Scotland have not yet issued further guidance on this matter, but they have recently held forums for interested parties to air their views, and they have indicated that they will publish a follow-up bulletin before the end of 2017.
What does this mean for pensioners looking to switch SIPP providers?
Unless this results in a change in Revenue Scotland's approach, pensioners will be penalised if they move SIPP providers, as each time they do so they would be liable for LBTT based on the open market value of the asset being transferred. This inhibits consumer choice and competition, and pensioners may be forced to stay with pension providers even if they are unhappy with their service.
It is therefore hoped that Revenue Scotland will change their approach, and deal with such transfers in the same way as HMRC. If this does not happen, pensioners will need to carry out due diligence to be as certain as possible (in the absence of a crystal ball!) that they have chosen the right pension provider for them before their SIPP is set up, since any move could be prohibitively expensive.
One final point for pensioners and their financial advisers to consider is whether to choose a SSAS (small self-administered scheme) instead of a SIPP, since the legal structure of a SSAS would allow pensioners to change pension administrators without transferring title and therefore without incurring LBTT liability. This may not be economically viable in every case, but is worth considering.
As mentioned, it is anticipated that Revenue Scotland will publish definitive guidance on the question of LBTT liability on in specie transfers before the end of 2017. However, the timescale has slipped previously, and so it is possible that the final position will not be known until 2018.