“In-specie transfers” sound like something from one of the Alien movies but until very recently they contained a real threat to Scottish pensions, didn’t they?
They certainly could have done but, thanks to the reversal of a decision by Revenue Scotland, the Scottish pensions industry is no longer at a disadvantage compared with its English and Welsh counterparts.
For many years, those who held commercial properties in Scotland within their self-invested pension schemes (SIPP or SSAS schemes) were able to transfer commercial property between pension providers without any liability to Stamp Duty Land Tax, or Stamp Duty before that.
The advent of Land and Buildings Transaction Tax (LBTT), which replaced Stamp Duty Land Tax in Scotland in 2015, changed the landscape.
How did it do that?
Revenue Scotland took the view that such a transfer of commercial property between pension providers for the same beneficiary was liable to LBTT.
Its interpretation was that such a transfer was a "land transaction", with the chargeable consideration being the assumption by the new pension provider of the obligations owed to the pension member.
This was despite the wording of the tax provisions in Scotland being identical to that in England and Wales.
What was the effect of this interpretation going to be?
The result was that the same transaction governed by identical wording was being treated in opposite ways by Revenue Scotland and HMRC in England and Wales.
This inconsistency was hurting the pensions industry in Scotland, as consumer choice was restricted. What’s more, pension investors in many instances were stuck with providers who they felt were too expensive or not providing the service required.
Pension providers were seeing a previously vibrant market in Scotland become virtually extinct.
What happened to bring about the change?
Representations were made by us on behalf of many clients and others to challenge Revenue Scotland's position on this issue. Revenue Scotland initially stood its ground, before announcing at its LBTT Forum in April that updated guidance would be produced.
Finally, on December 28 came the news the industry had waited, and hoped for - Revenue Scotland had made its guidance available and conceded the issue. The position has reverted to the previous treatment of such transactions.
It confirmed that “in-specie” transfers will no longer be seen as ‘“chargeable”. In a statement it said: “Following further representations on the matter, while such transfers are still considered to be land transactions, debt in the form of the liability assumed to pay benefits to pension scheme beneficiaries will not generally be considered to be given as chargeable consideration in relation to such transactions."
That sounds like a man from the Revenue talking so I’m glad you understand what that means. But what does it this now mean for pension members and the pensions industry in Scotland?
The decision brings back extra flexibility to transferring properties that are already held in a SIPP or SSAS. In addition, Revenue Scotland will apply its new position both prospectively and retrospectively.
And what that means is that many savers could potentially be in line for sizeable rebates, as Revenue Scotland refunds any LBTT paid on such property transactions.
Now that this anomaly between jurisdictions has been removed, the industry can move forward with a sense of clarity. With many transactions for pension providers having been put on hold, or indeed aborted, because of this issue it is vital that this market is re-invigorated for business and the consumer.
This Q&A first appeared in the March/April 2018 edition of Scottish Business Insider.