Axa denies SIPP function breaks HMRC rules

Axa has denied a practice it permits within its Family Suntrust SIPP is in breach of tax regulations.

The product allows members of the pension to allocate varying levels of investment growth to different members.

It is commonly used to transfer pension benefits from parents to children without incurring tax charges.

For example, within a SIPP with a 10% investment return and five members, one member could take 6% of the growth and the remaining four could take 1% each.

An Axa spokesperson said: "Based on the legal advice we have taken, we are comfortable with our approach to the product features of Family Suntrust."

However, rival providers have claimed this practice is in breach of tax legislation.

Hornbuckle Mitchell, Aegon, Standard Life, and Dentons forbid the practice in their SIPPs.

Martin Tilley, business development director at Dentons, said the practice may break tax rules.

"All members should benefit equally from the returns on all investments," said Tilley, (pictured).

Her Majesty's Revenue and Customs' (HRMC) rules state in cases after October 2007 where a member surrenders any benefit they have a right to under a pension scheme, it is treated as an unauthorized member payment and the member therefore becomes liable to a tax charge.

There are some exceptions, such as where the surrender is made to provide benefits for the member's dependents after the member's death.

However, an HMRC spokesperson warned: "Tax charges may apply where members surrender their rights to other individuals within a SIPP."

The spokesperson stressed it is the responsibility of schemes to ensure they comply with tax rules.