A court has ruled that a loan taken out to fund investments as part of a pension transfer was a form of pension liberation and should be subject to tax.
Richard White had accrued pension rights under British Airways’ final salary scheme when he looked in to transfering into a Sipp in 2010 in order to invest in a company called Imperium Enterprises.
Against advice from an IFA, White confirmed he wanted to transfer, but after opting out of the BA scheme, the consulting actuary firm he planned make the Sipp investments through said that it now had reservations about Imperium.
Two days later, White transferred £515,794 into a Sipp provided by Pilgrim Trustee Services, but also contacted Rowanmoor around the same time saying he wished to invest £520,000 in a Sipp and would like some of that to be invested in Imperium.
Rowanmoor expressed its concern that Imperium was allowed to make loans that would contravene Sipp regulations, and received an undertaking from White that he would “not be receiving a loan from Imperium Enterprises Ltd or any company…associated with them”.
White then signed a loan agreement on 26 October for “£75,000 on an interest only basis and the capital will be paid from the proceeds of your pension fund.”
HMRC opened an enquiry in 2012, and levied a £30,000 unauthorised payment charge on White which he appealed at the Tribunal.
The First Tier Tribunal has sided with HM Revenue & Customs
Judge Thomas Scott says in his ruling: “I find that the loan was a ‘payment’ for the purposes of [the legislation] and that it was made in connection with the investment by the Rowanmoor Sipp in Imperium, which was an investment acquired using sums held for the purposes of a registered pension scheme…The appeal is therefore dismissed.”
Technical Connection head of pensions strategy Claire Trott says: “This is just one way that funds are extracted from a pension before age 55 and it can be clearly seen that this isn’t acceptable as the investment is dependent on the loans being repaid. It seems to be the could have been a vicious circle because they plan was to use pension benefits to repay the loan and the money repaid to the loan to pay pension benefits. If a significant amount of people defaulted then there would be nothing in the investment to pay the benefits.”