Pension Liberation can lead to a hefty member tax charge

24th March, 2020

  • Mr. Clark appealed to the Court of Appeal against the Upper Tribunal’s decision that a transfer of assets from his self-invested personal pension (SIPP) to another pension arrangement amounted to a “payment” within the meaning of section 160(2) of the Finance act 2004. Under this legislation, any payment by a registered pension scheme in respect of a member which is not authorised (i.e. not a recognised transfer), amounts to an unauthorised payment to the member. In the case of Mr. Clark, this meant a 40% tax charge payable by him as the recipient.  In addition to that 40%, the unauthorised payment surcharge of 15% was applied bringing the total tax charge to 55% of the transfer.  For these purposes, “payment” includes a transfer of assets and any other transfer of money’s worth or a payment made, or benefit provided in connection with an investment acquired using sums or assets held for the purposes of a registered pension scheme.

    Broadly, the facts were that Mr Clark transferred funds from his SIPP to a new ‘occupational pension scheme’, the LML Pension Scheme.  HMRC said Mr. Clark was liable for an unauthorised payment charge and surcharge because the transfer of funds from the SIPP to the LML Pension Scheme was a payment by a registered pension scheme to a scheme which was not registered so was not a recognised transfer under the legislation.  Mr. Clark argued that the transfer of assets did not carry with it a beneficial title to the assets transferred and was therefore not a “payment” for the purposes of the pension tax legislation. In other words, because the receiving scheme turned out not to be a registered scheme he did not benefit from the transfer. Creative but HMRC were not impressed. 

    Linguistics aside, the court considered that it was “deeply unrealistic” to approach the question of whether the SIPP transfer was a “payment” for the purposes of section 160(2) based on the failure of the trusts (of the receiving scheme).  It was clear that funds moved from the SIPP to another pension scheme for the sole benefit of Mr. Clark.  It was “implausible” that Parliament would have intended to exclude a transfer of bare title to an asset from the scope of an unauthorised member payment.

    This case highlights the difficult position that some transferring schemes find themselves in, especially where a member has a legal right to a transfer value.  Giving effect to a standard transfer payment is not dependent on whether the receiving scheme is a valid trust.  It is not the case that the individual does not incur an unauthorised tax charge and surcharge just because the receiving scheme is found to be an invalid trust. 

    Action for trustees

    Trustees or members considering transfer of assets from one registered scheme to a new pension scheme will need to be mindful of the possible adverse tax consequences. 

    Relevant Links

    Clark v Revenue and Customs Commissioners [2020] EWCA Civ 204 (21 February 2020)



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    • Published byGino Rocco

      Gino is a Professional Trustee specialising in all aspects of pension law focusing on defined benefit and defined contribution occupational pension schemes that range in size from the small to the very large. A solicitor admitted to practice in England and...

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