Pension warning: ‘Ignorance’ costing savers billions – HMRC issue discovered

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Stamp duty rates have been altered for all purchases made between July 8 2020 to March 31 2021. Zero percent will be charged on properties valued at £500,000 or less.

Anything valued between £500,001 and £925,000 will have five percent levied.

Beyond this, SDLT bills could reach 12 percent.

The changes were introduced to support the economy and keep property purchasers afloat during this particularly difficult time.

However, a worrying problem identified by Cornerstone could overshadow any positives generated by the new holiday rules.

Properties can be transferred into private pension arrangements but Cornerstone has identified an industry-wide error with this which means that, according to their analysis, more than 120,000 people may be owed compensation of up to £80,000.

They explained: “The error – whereby solicitors acting in such transfers assume that Stamp Duty Land Tax (SDLT) must be paid on the transfer of property from multiple owners into SIPPs or SSASs – has been confirmed with HMRC by Cornerstone Tax, who have already won several test case refunds for their clients and have received pre transaction “legal” clearance from HMRC.

“Given the comprehensive nature of this misunderstanding across the industry, Cornerstone calculate that the compensation due from HMRC and solicitors to pension holders affected could amount to nearly £10 billion in total.”

Cornerstone received advance clearance from HMRC on these findings confirmed that pensions that acquired trade properties from joint owners or owner-managed companies since 2007 (which would have paid SDLT on these contributions), should not have paid SDLT.

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They detailed that this error meant that customers not only lost capital from their pensions in the initial SDLT payment, but also lost the potential to invest said capital in other assets, losing out on further growth.

David Hannah, a principal consultant a Cornerstone Tax, went into further detail on the company’s research which highlights a troubling industry wide level of ignorance. He said: “We have spent the last year or so working on researching this issue.

“The scale of it and the industry reluctance to even acknowledge that there is a problem has been staggering.

“We have contacted over 50 of the top pension providers, accountants and IFAs in the country and thus far have not received a single correct response, highlighting the prevalence of ignorance to this issue in the industry.

“Given the fact that we have a pre transaction clearance and refunds from HMRC on two cases it leads me to believe that tax advisors, accountants, and solicitors simply aren’t doing what needs to be done when presented with this particular question and scenario.

“They are in fact operating on a series of assumptions and almost ‘reflexes’ which cause them to see the words cash/selling in the question and, because it would be common sense to assume that tax is due, they are simply reaching for the obvious answer.”

Despite this, there is evidence that some organisations within the field are taking the matter seriously.

Leigh Philpot, the Managing Director of the wealth management company Kingswood Group, commented on Cornerstone’s findings: “We were surprised when recently advised by Cornerstone that the payment of stamp duty by pensions in these circumstances was not taxable.

“We believe many of our clients will have been impacted by earlier erroneous tax advice. Our advisers are therefore reviewing the circumstances for these clients and working with Cornerstone to seek redress.

“We also expect enquiries to our Kingswood offices across the UK from non-clients seeking assistance in navigating through this situation.”

Andrew Marr, a Tax Partner at Forbes Dawson Tax Specialists, also expressed his surprise at the lack of awareness in the field: “The situation of transfers to and from partnerships and connected parties is well known to tax advisors across the UK and is covered by HMRC in their manuals.

“Broadly, if a partnership makes a transfer to a connected party then no SDLT should be due.

“If a partnership makes a transfer to a connected pension scheme then it should follow that no SDLT is due and I would expect HMRC to agree with this.

“I am surprised to hear that this issue does not seem to be on the radar of pension advisors.”

A HMRC spokesperson had the following to say in response to the findings: ”A transfer of property to a pension fund is within the scope of Stamp Duty Land Tax (SDLT). In each case the amount of SDLT payable will depend on the specific facts and circumstances surrounding the transfer to the pension fund and pre-transaction clearance provided by HMRC in one case cannot be applied more generally to other cases.

“Caution should be taken with approaches or advertisements claiming they can secure a SDLT refund as HMRC retains the right to check claims and any incorrect or unsubstantiated claims can leave claimants liable to a penalty.”

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