Part 4 – Problems with Self-Invested Personal Pensions: SIPPing from a poisoned chalice?

01 / 07 / 2020

A series of recent cases in the Upper Tribunal, the High Court and from the Financial Ombudsman Service have highlighted some potential concerns for members and providers of self-invested personal pensions (“SIPPs“). In particular:

  1. in HMRC v Sippchoice [2020] UKUT 0149 (TCC) (“Sippchoice“), the Upper Tribunal held that a transfer of shares to a pension scheme (an in specie distribution) was not deductible for tax purposes;
  1. in Adams v Options Sipp UK LLP (formerly Carey Pensions UK LLP) [2020] All ER (D) 136 (“Carey“), the High Court held that there was no duty on a SIPP provider to advise on investments, as the relevant contract between the provider and the claimant was expressly on an “execution-only” basis and the provider had no authorisation to provide advice; and
  1. in decision reference DRN2076425 (the “Mr. T Decision“), the Financial Ombudsman Service upheld a complaint against the same SIPP provider as in Carey, namely that the SIPP provider had failed to comply with regulatory requirements in accepting business from an unregulated introducer, resulting in compensation being awarded to the complainant.

The importance of these decisions is not limited to SIPPs, and may also be relevant for other pension schemes. This article reviews the outcome of the above decisions, and an incidental issue arising out of the Sippchoice case, being the reliability (or lack thereof) of HMRC’s manuals and guidance.

The Sippchoice Decision

The Sippchoice case dealt with a transfer of shares to a pension scheme, which transfer was intended to be a contribution to the scheme.

HMRC’s position was that the relevant legislation only gives relief for payments of money, and not for transfers of assets, even if made in satisfaction of a money debt. Conversely, Sippchoice’s case was that the wording “contributions paid” (in the relevant legislation) includes the transfer of assets in satisfaction of a money debt; Sippchoice also contended that transfers of non-cash assets are in any event “contributions paid” even if they are not in satisfaction of a money debt.

The Upper Tribunal, citing (inter alia) Brutus v Cozens [1973] AC 854, held that “paid” should have its ordinary meaning, being the payment of money. The Tribunal said you would not ordinarily say that you “paid” shares to another individual.

Moreover, whilst another chapter of the same legislation explicitly provides that “payment” includes a transfer of assets “and any other transfer of money’s worth”, that section is stated to apply for the interpretation only of Chapter 3 of Part 4 to the Finance Act 2004. For the purposes of the transfer of the shares and tax deductibility, the relevant legislation is Chapter 4 of Part 3 to that Act, which does not define “payment”. This persuaded the Upper Tribunal that the ordinary monetary meaning of “paid” should apply.

The Upper Tribunal decided that the question of whether the in specie distribution was in satisfaction of a money debt was irrelevant. To quote paragraph 44 of the decision:

If, as we have found, “contributions paid” in [the legislation] means paid in money then it cannot encompass settlement by transfer of non-monetary assets even if the transfer is made in satisfaction of an earlier obligation to contribute money“.

The result of the Sippchoice decision was that there was no entitlement to tax relief in respect of the transfer of the shares to the SIPP. The same principle is likely to apply to all non-monetary contributions to any pension scheme. Interestingly, despite the outcome of the case, HMRC’s Pensions Tax Manual PTM043310 continues to suggest (at the time of writing) that “it may be possible to structure a transaction so that a monetary contribution is achieved without the need for cash to pass between the employer and the pension scheme“. That the manual conflicts with recent law (and is therefore incorrect) confirms a position often taken by tax advisers, that HMRC’s manuals are not determinative and are merely indicative of HMRC’s view.

A Word on the Reliability of HMRC’s Manuals

The incorrectness of HMRC’s manual in the Sippchoice decision is not an uncommon phenomenon: HMRC have issued many manuals touching upon many taxation issues; and not every page in every manual is one-hundred per cent accurate in respect of the law, or even correct at all as Sippchoice indicates! Seasoned tax advisers will be well aware that the manuals are merely indicative of HMRC’s view, and usually do not, themselves, have legal force.

All parties, including pension scheme members, pension scheme providers, intermediaries, and advisers, should therefore keep in mind that HMRC’s guidance should be relied upon only where the law behind it has been checked for accuracy. Wedlake Bell’s Pensions & Employee Benefits team and Wedlake Bell’s Tax team will be happy to assist.

SIPP Investments – The Carey and Mr. T Decisions

The Carey Decision

In Carey, the claimant alleged that the pension provider, Carey Pensions, had accepted retail clients procured by an unregulated introducer, CLP Brokers LLP (“CLP“). The claimant, Mr. Adams, saw a promotion for CLP on the internet and contacted them. On CLP’s recommendation, Mr Adams transferred his personal pension plan benefits to a SIPP, which SIPP was provided by Carey Pensions. In 2015, the value of the SIPP was reduced by Cary Pensions by 50%, and Mr. Adams claimed damages from CLP and from Carey Pensions for regulatory breaches in accepting work from CLP.

The Judge provided a summary of the defendant’s case, which was that:

  1. Carey Pensions carried on the business of setting up and administering SIPPs on an “execution-only” basis;
  1. it was not authorised to and did not provide advice to the claimant as to whether to establish a SIPP or whether to enter into the underlying investment;
  1. the contract made clear that the underlying investment was the sole responsibility of Mr. Adams; and
  1. Mr. Adams was fully aware, before entering into the SIPP, that the underlying investment (containers) was high-risk, but chose to proceed anyway.

In a nutshell, the Judge concluded that steering an investor in the direction of a specific SIPP provider did not amount to a recommendation of that SIPP, so CLP could not be seen as having “advised” Mr. Adams to enter into the SIPP. In addition, the Judge held that the “obvious” starting point as to Carey Pensions’ potential liability should be the contract between Mr. Adams and Carey Pensions. That contract specified that it was on an execution-only basis, and given that Carey Pensions was not authorised to provide advice to the claimant, this meant that (in making the underlying investment) Carey Pensions was not in breach of a regulatory duty to act honestly, fairly and professionally in the best interests of Mr. Adams. A third cause of action against Carey Pensions, on tort grounds, was dismissed on similar principles.

The Carey decision is a reminder that recommendations do not always comprise “advice” for the purposes of regulated professions. In addition, pension providers and pension scheme members should remember that their contracts will almost invariably be the starting point for any claims, so those contracts should be reviewed, with professional advice where appropriate, to ensure that the terms are satisfactory, as should any later variations.

The Mr. T Decision

Interestingly, in the Mr. T Decision, a case with remarkably similar issues to those in Carey, and even involving Carey Pensions and CLP and a similar investment, the Financial Ombudsman decided that Carey Pensions did fail to satisfy its regulatory obligations in accepting business from CLP and in investing a client’s monies into a high-risk SIPP.

The Financial Ombudsman took the view that, had Carey Pensions carried out sufficient due diligence, it would have known that CLP was likely to be providing more services than “merely introducing consumers to Carey’s SIPP“. As a result, the Financial Ombudsman considered that Carey Pensions had not acted with due skill, care and diligence, and had failed to have acted in Mr. T’s best interests by accepting business from CLP. The result of the decision was that Carey Pensions were made liable to return Mr. T to the position he would have been in if it were not for Carey’s failure to carry out due diligence before accepting the business from CLP.

The distinguishing factor (if any) between the Mr. T Decision and Carey is hard to find. In both cases, a consumer approached CLP, who in turn recommended that the consumer invest their monies in a SIPP provided by Carey Pensions, and in both cases the consumer suffered financial detriment as a result. Yet, in Carey, Carey Pensions was let off the hook, whereas in the Mr T. Decision, Carey Pensions was forced to compensate the consumer. Perhaps one lesson which can be gleaned from a comparison of the two cases is that the Financial Ombudsman Service would appear to have had greater regard than the High Court to the potential duties owed to a consumer of a pension scheme. Pension scheme members seeking to make a claim might therefore seek to do so by way of the Financial Ombudsman, rather than through the courts, particularly if the facts of the claim are similar to those in Carey or the Mr. T Decision.

Another take-away from the two cases may be that the law in this area is still relatively unsettled. Therefore, pension scheme providers (and in particular SIPP providers) should exercise caution when agreeing to take on work from potentially unregulated introducers. Pension scheme providers should also ensure that they carry out proper due diligence checks before accepting work, and should regularly review their contracts to avoid becoming liable for services they do not expect to provide.


The lessons which can be learned from Sippchoice, Carey and the Mr. T Decision are certainly relevant to SIPPs, but the nature of the principles laid down in those cases will also have wider application to other types of pension schemes. In Sippchoice, a transfer of shares to a SIPP was held not to be a contribution to the scheme for which tax relief would otherwise have been available at source. That decision will apply to any similar in specie contributions, including contributions made to an occupational pension scheme. In addition, the questionable reliability of HMRC’s manuals should be noted by all pension scheme stakeholders.

As to Carey and the Mr. T Decision, whilst the law is somewhat less clear as a result of the conflicting outcomes on very similar facts, there are lessons to be learned. Namely, parties to a pension scheme contract should ensure that they are satisfied with the terms of that contract and the scope of the pension scheme provider’s duties as described therein. In addition, pension scheme providers should ensure that they carry out satisfactory due diligence before accepting business, particularly from introducers who may be unregulated.

Ultimately, the three cases paint SIPPs in a somewhat unreliable and risky light. However, investing in a SIPP is not always sipping from a poisoned chalice, and SIPPs can be a very useful vehicle to accrue a personal pension.  Wedlake Bell’s Pensions & Employee Benefits team can assist you with any advice in respect of the legal aspects of a SIPP, whether contentious or non-contentious.