Tribunal ruling puts HD Sipp investors at risk of devastating tax charges

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A tribunal decision has put the pension funds of HD Sipp customers under threat from huge tax charges.

The first-tier tax tribunal concluded a loan made as part of a pension liberation scheme should be considered a payment and consequently subject to a 40 per cent income tax charge and a surcharge.

Mark Danvers had transferred funds worth £35,000 from two registered schemes to the HD Sipp in 2009. He then signed a loan agreement with G Loans that meant his remaining funds would be invested in KJK Investments.

In June 2015 the High Court wound up G Loans and KJK Investment. Around £12m of pension assets was invested in KJK by 209 clients over two-and-a-half years, which was then used to provide loans through G Loans.

Clients were not made aware of the arrangement and eventually G Loans could not repay KJK and it in turn could not pay dividends to clients.

Danvers appealed HMRC’s interpretation of the loan, denied there was a connection to an investment acquired using pension assets and argued he had not liberated his pension as his funds remained within a Sipp.

But the tribunal dismissed the appeal on all points.

In 2013 Mattioli Woods was appointed administrator of HD Sipp, which had 40 active members at the time, after the collapse of the £60m Arck property investment.

Pinsent Masons partner Ben Fairhead says this is the first case addressing how individuals in pension liberation schemes are taxed.

He says: “This shows that the threat of tax assessments is very real and, based on this decision, it might not be straightforward to find a way of successfully challenging them in the tax tribunal.”

He adds: “Given what we know already about the companies involved in the purported investment and loan arrangements for the scheme going into liquidation back in June of last year, the position overall looks bleak for the members of the HD Sipp.

“There will no doubt be many more accounts to follow over the coming months of individuals losing their pensions to scams, as well as having to meet tax charges like this where payments were made.”