The taxpayer had established a self-invested personal pension plan (“SIPP”). He transferred the SIPP funds into a “pension freedom” scheme, which was operated by an offshore company. It was his belief that he would free his assets and be enabled to borrow from the fund in order to invest in property. The taxpayer purported to enter into an employment contract with the offshore company (being the sole member of its pension scheme), and to surrender his benefits under the pension scheme to the offshore company as principal employer. The taxpayer made investments using money borrowed from the offshore company’s parent company, to which the funds had been transferred. The revenue carried out a “discovery assessment” pursuant to section 29 of the Taxes Management Act 1970. The revenue asserted that the taxpayer’s prima facie surrender of benefits did not give rise to an “authorised employer payment” within the meaning of section 175 of the Finance Act 2004, and that the applicable payment was an “unauthorised member payment” within section 160(2) of the 2004 Act, resulting in liability to an unauthorised payments charge under section 208 of the 2004 Act. The taxpayer appealed against the discovery assessment to the First-tier Tribunal, which held that the offshore company’s trusts were void for uncertainty and by operation of law the movement of funds and subsequent payments made by the taxpayer had been effective to transfer only the bare legal title to the money, the beneficial interest in which was held on a resulting trust for the SIPP. The taxpayer challenged the conclusions and the applicability and scope of a discovery assessment in the present case, but the tribunal had concluded that the scope of the discovery assessment was broad enough to encompass the transfer from the SIPP to the offshore company’s pension after it had become clear that the pension trusts were invalid. The Upper Tribunal dismissed the taxpayer’s appeal.
On the taxpayer’s further appeal —
Held, appeal dismissed. (1) Payment within section 160(2) of the Taxes Management Act 2004 (“unauthorised member payment”) included a transfer of money from one pension scheme to another in circumstances where it later became clear that the trusts of the recipient scheme were void for uncertainty. It was unrealistic to approach the question of whether the transfer from the SIPP was a “payment” in such a case on the basis that the failure of the trusts of the offshore company pension should without more prevent the provision from applying. The money had left the SIPP and been used to implement the taxpayer’s scheme. It was implausible that Parliament would have intended to exclude a transfer of bare legal title to an asset from the scope of an unauthorised member payment, not least because such a payment would often be made in breach of trust. The legislative scheme as a whole pointed strongly towards the conclusion that the transfer from the SIPP was an unauthorised member payment within the meaning of section 160(2). Charges to tax under provisions such as section 208 of the 2004 Act were intended to have a strong deterrent effect as well as to preserve the integrity of the pension fund. The question whether a “payment” was made for authorised purposes had to be answered by looking at the practical business reality of the transaction, including any composite transaction of which the payment formed part. If the intended purpose and effect of the transactions was that money left the scheme to be placed at the free disposal of the member, the mere fact that it might be subject to an equitable obligation to restore it to the scheme would not prevent it from being a “payment” in the ordinary sense (paras 36, 39, 45, 47, 53, 79, 82, 110, 111, 112).
(2) Section 29(1) of the Taxes Management Act 1970 empowered the Revenue to make a further assessment where it became clear that the original discovery assessment had not taken into account income which ought to have been assessed, or that an assessment to tax had become insufficient. According to section 29(2), a taxpayer should not be subject to such further assessment if the return was made in accordance with the practice generally prevailing at the time. However, when making a discovery assessment, the revenue might not be in possession of all the relevant facts or might foresee that complex questions of law would arise . Moreover, the scope of the assessment had to be defined by the subjective discovery made by the assessing officer and could not be extended by virtue of the appeal process. The assessment had to be read in context in order properly to understand its meaning. When making the discovery assessment it was clear that the revenue was still in the course of investigating the composite series of transactions beginning with the transfer from the SIPP, and that the officer making the assessment had that wider picture in mind when doing so. Therefore the “discovery” extended to any loss of tax in the relevant year occasioned by an unauthorised member payment made to or in respect of the taxpayer, arising from that series of transactions (paras 87–88, 97, 105–109, 110, 111, 112).
Decision of Upper Tribunal (Tax and Chancery Chamber) [2018] UKUT 0397 (TCC) affirmed.
Michael Jones (instructed by Reynolds Porter Chamberlain llp) for the taxpayer.
Jonathan Davey QC and Sam Chandler (instructed by Solicitor, HMRC) for the revenue.