James Langton reveals hidden overpayments of stamp duty by SIPP and SSAS pensions.
It’s long been the case that part of the long-term retirement planning of many dental practitioners is to sell, or contribute, the practice premises to their pension schemes.
The inherent advantages of a pension – namely tax-free roll up of capital gains and income while providing a useful ‘super deduction’ from practice profits in the form of rent – mean that, in the last 15 years, many thousands of dental practices have followed this well-trodden route.
But when selling the practice premises to the pension fund(s), there has always been the thorny question of SDLT – or stamp duty land tax, as it’s more widely known.
It’s always been the case that you rely on your pension trustee or administrator, usually together with the law firm they recommended, to deal with the stamp duty on the purchase, or contribution, of the property.
And you would expect there to be stamp duty, right?
Provided you are a sole practitioner selling to a sole pension scheme, that would be right. But stamp duty expert Cornerstone Tax announced some two and a half years ago that this wasn’t always the case. Where there is a partnership, either on the selling side or the buying side, no SDLT is due at all!
Why would this be the case?
Rules for connected persons
You are all a ‘connected person’ for the purposes of your pension fund. The law provides that when a partnership sells or transfers a property to a ‘connected person’, special rules apply.
Provided that all the parties are connected, no tax is due!
For example, if premises worth £950,000 were sold in 2018 to the pension, stamp duty of £37,000 would have been paid in error. Add on the capital growth lost at 6% for four years, and it comes to £47,000.
The question was first presented to Cornerstone by an IFA on behalf of his husband-and-wife clients. They were in a partnership and wished to sell their trading property to their pension scheme.
When they, with HMRC clearance, told the IFA that the answer was £nil, he responded with: ‘But we’ve done hundreds of these every year since 2007 and paid tax on each one’.
And there’s the problem. There are over 12,000 dental practices in the UK, many of whom operate as partnerships (either general or LLPs).
It’s highly likely that out of all those practices, a significant number will have undertaken these transactions for good reasons. However, they’ve unknowingly allowed their pension schemes to pay the pension capital through an unnecessary stamp duty payment.
Former tory pensions minister Baroness Ros Altmann raised this issue with the industry.
Despite several technical briefings, articles published in tax journals and mainstream newspaper stories, the pensions industry has so far failed to sound any warnings.
How you can take action
So, what should you do if you think you are affected?
If you fit into any of the following situations, then you may be entitled to claim a refund or compensation:
- You were a partnership or LLP at the time of the sale and sold to one or more pension funds
- You were a limited company and sold to a multi-member pension scheme or to multiple pension schemes.
This applies whether you sold all or part of your interest in the property line.
Pension property purchases, other than from sole practitioner to sole member pension, need to be urgently reviewed and corrective action must be taken.
Group chairman of Cornerstone, David Hannah said: ‘I’m deeply concerned that the pensions industry, who has the custody of our retirement wealth, has shown a particularly indifferent attitude to this issue and left it for individual pensioners to spot the problem on their own rather than alert them to the possibility’.
Pension schemes could have lost, on average, £50,000 in investable funds and growth as a result of this stamp duty error and the cases could run to many thousands.
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