April 2006 heralded the move from HMRC’s previous discretionary approval practice to the current registered pension scheme regime. From this date, the "permitted investment list" was withdrawn, meaning in theory a registered pension scheme can own any asset at all, albeit that certain conditions would need to be met or the asset could result in tax charges on the scheme administrator and in most cases either the members or scheme employer as well.

There are some basic considerations surrounding loans made by pension schemes; shares owned, how much a pension scheme can borrow from someone else and scheme transactions with scheme members, employers or connected parties.

In addition, if the pension scheme is classed as an investment regulated pension scheme, one where at least one member is able to influence how their own pension pot is invested, then consideration needs to be given to whether the asset is taxable property.

What constitutes tangible moveable property?

Taxable property includes certain defined assets, the most notable being any interest in residential property but also tangible moveable property. These are any things you can touch and move, and include works of art, classic cars and even gold coins.

Sometimes, defining what tangible movable property is might be more complex than you would imagine. When holding commercial property, the structure of the property itself is obviously not moveable as would be boilers and central heating systems which are integral to the building to enable its permitted use. However, moveable internal partitioning and office furniture would almost certainly be regarded as tangible moveable property and if owned by the scheme would lead to tax charges. For this reason, the scheme administrator will need to check carefully any acquisition contract to ensure that it does not include any potential taxable objects.

Some other assets however blur the lines, two of which are wind turbines and solar panels, both of which we are often questioned about. There does not appear to be any case law determining what is or isn’t tangible moveable property so HMRC is likely to rely on common law. Common law suggests that not everything attached to land is a fixture and to test this, two factors will be considered:

What is the purpose of the fixing: is it for better use, or for safety reasons and not with intent of making it part of the land? Secondly, the degree to which it is fixed and whether removal would make it not fit for purpose and would removal substantially damage the premises or land to which it is attached?

In the case of Peel Land and Property (Ports No. 3) Ltd v TS Sheerness Steel (2013) a warehouse contained a crane that ran on rails. It was concluded that the crane was mobile and if removed, could be used elsewhere and would not damage the land or building, whereas the rails on which it ran were affixed to concrete foundations and were deemed part of the structure.

A wind turbine is similarly constructed on and connected to the land on which is sits by deep concrete foundations and underground electrical cables. It is inextricably linked to the land because of the climatic conditions of the area. It is designed to be a permanent fixture with a life span of around 25 years. It is possible that HMRC might conclude that a wind turbine is a long term fixture and thus could be a permitted non-taxable asset of a self-invested pension scheme but each case would be considered on its merits.

Solar panels it could be argued could be removed from the roof of a building most probably without damaging it and the degree of affixation is arguably less, particularly if they have been added after the property was built. Others though if installed as part of the original build, could be more integrated into the roof structure and not so easily removed. Clearly a case by case assessment is necessary.

These points raised, trustees and administrators are unlikely to want the uncertainty that accepting these assets bring. Couple this with the reason that wind turbines and solar panels exist is to generate from scratch electricity which is "sold" back to the energy suppliers. Whilst investment gains are given favourable tax exemptions in pension schemes, trading gains are taxable and another uncertainty exists. That is not to say that any such investments including wind turbines or solar panels should simply be dismissed out of hand. A recent case highlighted a "middle ground" for all parties’ benefit.

Taxable property case study.

A profitable family farming business owned substantial land holdings which were used for agricultural purposes. They were approached by a power generation company who had identified that certain fields were in prime positions to benefit from wind turbine power generation. In this case the power generation company would own the turbines, seeking to simply rent the land for a 26 year term.

The rental of the land for the use of wind power generation is substantially more than it would be for simple agricultural use so the client decided that the land could be sold across to a newly created small self-administered scheme (SSAS), created for the four family members. A professional valuation of the land was required to evidence the arm’s length price to be paid for the land which took into account the power generation company’s interest. This value was therefore above the regular price that would have passed had the land had sole agricultural use. Payment by the SSAS to the sponsoring farming company injected capital needed to develop its business, whilst the SSAS subsequently entered into a lease with the power generation company who would install and maintain the turbines. The rental yield initially agreed was 7.2% of the purchase costs rising in stages to 9.6% after 15 years.

The SSAS has obtained a high yielding asset without the complication of ownership of the wind turbine or any question of being involved in a trading activity.

If you would like to discuss an asset for a Dentons' SIPP or SSAS that could potentially fall into the category of 'tangible moveable property' please contact us.