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Ownership of non-standard assets
Posted on 07/06/2017 by Stephen McPhillips
SIPPs holding assets deemed as ‘non-standard’ now have to be recorded carefully by the SIPP operator and these impact on the required level of a SIPP operator's capital adequacy provision. As a result a number of SIPP providers are either stopping or restricting the level of non-standard assets they will accept.
We believe that a market and demand for non standard assets will continue to exist and a handful of SIPP operators will continue to service it. It is however useful to understand the degree to which a SIPP operator must complete examination of an asset before making a decision to accept an individual asset.
Working to the Regulator’s requirements, a SIPP operator must act in the interest of their client. As such, acceptance of an asset that results in a tax charge could be regarded as being contrary to this demand.
Whilst a non-standard asset may prove to be a good asset, they are also regarded as high risk and there are many criteria that will have an impact on the SIPP provider’s decision to accept or decline the asset:
Is the asset in a start-up or infant company and to what degree has trading commenced?
Have accounts been filed? This will demonstrate if the company is truly a trading entity and give an indication of its stability.
Have the directors got a history of short lived, wound up ventures or a history of gazette notices which might indicate a template for failed or strategically closed companies?
Does the asset have a secondary market so that it can be disposed of in a timely manner and at a fair market value when necessary?
Will the SIPP asset, together with any connected parties, own, control or be an influential shareholder of a trading entity?
A detailed and accurate list of current shareholders will be required and also an explanation as to how this list will be affected by the SIPP acquisition. For some companies control or influence will be obvious, but for others with more diversified shareholdings, this may take some investigation. It might also be that shareholding rights and voting rights are different so an understanding of both will be required.
The reason for this concern is that if a SIPP is deemed to have control or influence, then the assets the company holds could be deemed by HMRC to be held by the SIPP indirectly. Only certain assets can be held. These include assets that are for the sole purpose of the administration of the company and whose value does not exceed £6,000.
Other assets which are deemed as “tangible moveable property” could include anything from cars, office equipment, any plant or machinery, through to stock. Ownership of these assets triggers a tax charge which is obviously not in the interest of the SIPP or the client.
Lastly, the asset needs to be appropriately valued. As with all connected party transactions, if the SIPP buys from, or sells to a connected party, this must be at an independently drawn up arm’s length valuation.
Asset only companies, which hold no taxable property at all may be wholly owned by SIPPs and parties connected with them since it is the presence of the tangible movable property that triggers a tax charge.
Meeting the acceptance criteria at outset is one thing, but continual monitoring of the asset is also required to ensure that no changes in circumstances occur that may make an otherwise non-taxable asset, a taxable one.