A UK tax advisory firm believes there has been an industry-wide error in relation to property transfers into self-invested personal pensions (Sipp) and small self-administered pension schemes (Ssas).
The error has seen solicitors assume that stamp duty land tax (SDLT) must be paid on the transfer of property from multiple owners into Sipps or Ssass.
Cornerstone Tax said over 120,000 people may be owed compensation of up to £80,000 ($103,083, €87,893) each.
The firm has already won several test case refunds for clients and received pre-transaction “legal” clearance from HMRC.
Cornerstone Tax calculates that compensation for affected pension holders from HMRC and solicitors could be nearly £10bn.
Contacted over 50 providers
David Hannah, principal consultant at Cornerstone Tax, said: “We have spent the last year or so working on researching this issue.
“The scale of it and the industry reluctance to even acknowledge that there is a problem has been staggering.
“We have contacted over 50 of the top pension providers, accountants and IFAs in the country and thus far have not received a single correct response, highlighting the prevalence of ignorance to this issue in the industry.
“Given the fact that we have a pre-transaction clearance and refunds from HMRC on two cases, it leads me to believe that tax advisers, accountants, and solicitors simply aren’t doing what needs to be done when presented with this particular question and scenario.
“They are in fact operating on a series of assumptions and almost ‘reflexes’ which cause them to see the words cash or selling in the question and, because it would be common sense to assume that tax is due, they are simply reaching for the obvious answer.”
The tax advisory firm first identified the problem in early 2019 and approached several members of the pensions industry with its concerns.
It obtained advance clearance from HMRC, which confirmed pensions that acquired trade properties from joint owners or owner-managed companies, since 2007, which have paid SDLT on these contributions in-specie or sales to pension schemes, should not have paid SDLT.
The error means that not only did clients lose capital from their pensions in the initial stamp duty payment, but also lost the potential to invest that capital, missing out on growth opportuities in the ensuing years.
For the average error, Cornerstone Tax says the value of the claim is therefore calculated at 150% of the tax paid incorrectly (assuming 7% return on investment).
Leigh Philpot, managing director and head of wealth at Kingswood Group, said: “We were surprised when recently advised by Cornerstone that the payment of stamp duty by pensions in these circumstances was not taxable.
“We believe many of our clients will have been impacted by earlier erroneous tax advice. Our advisers are therefore reviewing the circumstances for these clients and working with Cornerstone to seek redress.
“We also expect enquiries to our Kingswood offices across the UK from non-clients seeking assistance in navigating through this situation.”
SDLT Refunds, part of Cornerstone Tax, administers all investigations into compensation and has set up a free helpline to anyone who think they may have a claim.