In 2010, Richard White looked into transferring his sizable final salary pension scheme with British Airways into a self-invested personal pension (Sipp) so he could invest in a company called Imperium Enterprises.
Against the advice of his financial adviser, White said he wanted to proceed with the transfer.
However, after opting out of his British Airways pension, the firm he planned to make the Sipp investments with pulled out, revealing it had reservations about the putting the money into Imperium.
Two days later, White transferred £515,794 into a Sipp provided by Pilgrim Trustee Services, but also contacted another provider Rowanmoor at the same time saying he wished to invest £520,000 in a Sipp and would like some of that to be invested in Imperium.
At the time, Rowanmoor also flagged up concerns that Imperium was allowed to make loans that would break Sipp regulations. White then told the company he would “not be receiving a loan from Imperium Enterprises Ltd or any company…associated with them.”
Despite the reassurance, White went on to sign a loan agreement on “£75,000 on an interest only basis and the capital will be paid from the proceeds of your pension fund.”
After opening an enquiry in 2012, HMRC whacked a £30,000 unauthorised payment charge on White which he appealed at the tribunal.
However, a first tier tribunal has sided with the UK tax office, with the judge in the case ruling the loan was a “payment” for transferring the final salary pension scheme.
“I find that the loan was a ‘payment’ for the purposes of [the legislation] and that it was made in connection with the investment by the Rowanmoor Sipp in Imperium, which was an investment acquired using sums held for the purposes of a registered pension scheme. The appeal is therefore dismissed,” said judge Thomas Scott
Technical Connection’s, head of pensions strategy, Claire Trott said: “This is just one way that funds are extracted from a pension before age 55 and it can be clearly seen that this isn’t acceptable as the investment is dependent on the loans being repaid.
“It seems to be the could have been a vicious circle because they plan was to use pension benefits to repay the loan and the money repaid to the loan to pay pension benefits. If a significant amount of people defaulted then there would be nothing in the investment to pay the benefits.”