'In specie' is a Latin term meaning 'in the actual form'. Transferring an asset 'in specie' means to transfer the ownership of that asset from one person/company/entity to another person/company/entity in its current form, that is without the need to convert the asset to cash.

What are in specie transfers and contributions?

In specie transactions can involve pension schemes in two different ways in specie transfers and in specie contributions.

In specie transfers

In specie transfers involve the transferring of assets from one pension scheme to another. These are relatively common and usually occur between different small self-administered schemes (SSASs) and/or self-invested personal pensions (SIPPs), otherwise known collectively as investment regulated pension schemes. An investment regulated pension scheme is under no obligation to accept an in specie transfer. The trustees of a SSAS and the scheme administrator of a SIPP will review the offered asset to ensure that:

• A proper market valuation has been made.
• It's suitable for the investment strategy of the scheme.

Let's assume a member of a pension scheme has started a new SIPP or SSAS and they want to transfer everything from their old pension arrangement to their new one. The checks have already been done and the trustee/scheme administrator of the new pension arrangement has confirmed that it will accept the transfer of assets.

In specie transfer or cash transfer?

Shares

There are two main steps to transferring shares in specie, let’s have a look at them:

1. The individual must first formally ask the new pension arrangement to request an In specie transfer of assets from the old pension arrangement. This is normally done by the signing of an application form that also gives the trustees/scheme administrator of the new pension arrangement permission to approach the trustees/scheme administrator of the old pension arrangement to request the transfer.

2. The trustees/scheme administrator of the old pension scheme must then arrange for the assets to be re-registered in the name of the new trustees/scheme administrator (or the custodian on their behalf). This process can take several months.

Property

The trustees/scheme administrator of the pension scheme will normally be the legal owner of any commercial property held within the scheme - the property 'title' is held by the trustees/scheme administrator. In a similar way to shares, the individual must make a formal transfer request (again, usually by application) that starts the process off. In the case of property, lawyers are involved and are required to change the 'title' of the property from one pension scheme trustee/scheme administrator to another. Pension schemes will want to carry out the normal conveyancing searches and checks - as they would if they were purchasing the property - to make sure it is a suitable investment for the pension scheme. This process can also take several months.

Funds

In some circumstances, funds can be transferred between schemes without first selling the units (or shares) and the process is similar to the re-registration process for shares - the legal ownership is re-registered in the name of the new pension trustee/scheme administrator. This can usually only happen when the funds are readily tradable and available through various distribution channels, for example, transfer of funds from one fund supermarket to another.

Other Assets

Other assets can be transferred such as policy-only executive pension plans (EPP), trustee investment plans, or traded endowment policies. A similar process to transferring funds would be followed.

Tax relief and costs involved

Re-registering the assets in the name of the pension scheme transfers the ownership of the assets. If a transfer involves an asset, for example, a property, the asset must be valued in cash terms by an appropriately qualified independent person before being transferred. As the assets are not being bought or sold, there are no dealing costs. However, the trustees/scheme administrator may charge for the work involved in changing the ownership of the asset and there may be two charges - on the way out of the existing scheme and on the way into the new one. This succeeds in getting the assets transferred into the new pension scheme but does not count as a contribution and therefore there is no tax relief. Neither does it count against the annual allowance.

In specie contributions

In specie contributions are where specifically defined assets held outside a pension scheme are transferred into a pension scheme without first selling the assets and paying the resulting cash into the pension. For example, an individual might seek to transfer shares that they already own directly into a SIPP.

There was previously a common misunderstanding that transferring an asset into a pension could be treated as a pension contribution with tax relief being available. However, following HMRC vs Sippchoice Ltd case it confirmed HMRC's position that, for the purposes of pension tax relief, a contribution must normally be a monetary amount. Examples include payments made by cash, cheque, direct debit or bank transfer.

HMRC Pension tax manual – PTM042100 - Contributions: the nature of contributions: introduction

Simply transferring an asset from an individual or company into a pension scheme does not turn the value of that asset into a monetary pension contribution. Unless one of the specific statutory exceptions applies, the transfer of the asset itself will therefore not qualify for pension tax relief and is not treated as a contribution for annual allowance purposes. This is different from an in specie transfer between two pension schemes, which is also not a new contribution and therefore does not receive tax relief or count towards the annual allowance.

There are, however, specific statutory exceptions. Certain shares acquired through a Save As You Earn (SAYE) option scheme or a Share Incentive Plan (SIP) can be transferred to a registered pension scheme and treated as a contribution on which tax relief may be available. HMRC states that qualifying shares must generally be transferred within 90 days of the relevant acquisition or transfer event, and the contribution is valued at the shares' market value on the date they are transferred to the pension scheme.

As we have already covered a pension contribution must normally be made as a monetary amount, so simply transferring an asset to satisfy a contribution obligation will not qualify for tax relief. However, HMRC accepts that an asset purchase can be combined with a monetary contribution through a contractual offset arrangement, provided there is a clear and recoverable debt for a specified cash contribution, a separate agreement for the pension scheme to buy the asset at market value, and a separate agreement to offset the contribution debt against the purchase price, with detailed and timely evidence of each step. If the asset is worth less than the contribution, the balance must be paid in cash for the full contribution to qualify for relief. For relief at source schemes, the specified contribution is the net amount, with the scheme administrator claiming basic rate relief from HMRC and the individual able to claim any additional higher rate relief where applicable.

Finally, even where legislation permits a particular arrangement, the receiving pension scheme does not have to accept the asset. In practice, relatively few providers accept assets as in specie pension contributions.

HMRC Pensions Tax Manual - PTM042100: Contributions: the nature of contributions: introduction

HMRC Pension schemes newsletter 86 – April 2017