If a self invested personal pension (SIPP) or small self administered scheme (SSAS) holds an indirect interest in taxable property by investing in a vehicle (e.g. by way of the purchase of shares or units or making a loan to the vehicle) that has any interest in taxable property and the vehicle is not a genuinely diverse commercial vehicle, the investment will give rise to tax charges.
These vehicles can include:
- trading companies/concerns
- investment companies/ special purpose vehicles
- other collective investment schemes, unit trusts, open ended investment companies (OEICs) and UK REITS (real estate investment trusts)
A vehicle is a genuinely diverse commercial vehicle if it, and the investment in it, satisfy the following criteria not only when the pension scheme makes the investment but all the time that the pension scheme has that investment:
Where the vehicle is trading:
- the vehicle’s main activity is the carrying on of a trade, profession or vocation
- the pension scheme member(s) either alone or together with associated persons do not have control of the vehicle
- neither the pension scheme member nor a person connected with the member is a controlling director of the vehicle or any other vehicle which holds an interest in the vehicle directly or indirectly
- the pension scheme does not hold an interest in the vehicle to allow a member or a person connected with a member to occupy or use taxable property.
Please note: ‘Controlling director’ includes a person who is a director (or someone occupying that position by whatever name or on whose directions the directors are accustomed to act), or who is a manger or otherwise involved in the management of the company’s trade or business, and is either on their own or with one or more associates are the beneficial owner of, or able, directly or indirectly, to control 20% or more of the ordinary share capital of the company.
We do not allow:
- investment by way of shares in, or a loan to, an overseas unquoted trading or non-trading company
- loans to individuals.
No more than 50% of the pension scheme’s assets can be invested in shares and/or unsecured loans to unquoted UK companies.
Where the vehicle is not trading:
- the total value of the assets held directly by the vehicle is at least £1 million, or it holds at least three residential properties, and, in either case, no single item of taxable property has a value of more than 40% of the total value of directly held assets
- if the vehicle is a company and resident in the UK, it is not a close company
- if the vehicle is a company that is not resident in the UK, it would not be a close company if it were resident in the UK
- the vehicle does not have as its main purpose or one of its main purposes, the direct or indirect holding of animals used for sporting purposes
- the pension scheme’s interest in the vehicle is not to enable a member or person connected with a member to occupy or use taxable property held directly or indirectly by the vehicle
- the pension scheme’s interest in the vehicle, when aggregated with the interests of any associated persons in the vehicle, is, at any time, less than any of the following limits:
- 10% or more of the share capital or issued share capital of the vehicle
- 10% or more of the voting rights in the vehicle
- a right to receive 10% or more of the income of the vehicle
- such an interest in the vehicle as gives an entitlement to 10% or more of the amounts distributed on a distribution in relation to the vehicle
- such an interest in the vehicle as gives an entitlement to 10% or more of the vehicle’s assets on a winding up or in any other circumstances
- such an interest in the vehicle as gives rise to income and gains derived from a specific property.
Please note: No more than 25% of the pension scheme’s assets can be invested in shares and/or unsecured loans to unquoted UK companies.
For more information or to discuss a particular investment, please contact our Sales & Marketing department.
Associated person: Includes the member, any connected person, any pension scheme relating to the member or a connected person and any associated pension scheme.
Connected person: A connected person is defined in Sections 993-995 of the Income Tax Act 2007 and Section 1122 of the Corporation Tax Act 2010) and includes:
- the member, the member’s spouse or civil partner, a direct relative (e.g. parents, grandparents, great grandparents, brothers, sisters, children, grandchildren, great grandchildren) of the member or member’s spouse or civil partner, and the spouse or civil partner of a direct relative of the member or the member’s spouse or civil partner
- a trustee of a settlement where the settlor of the settlement is the member or a connected person
- a person (or that person’s spouse or civil partner) who is in partnership with the member or with a connected person
- a company which is controlled by the member and or associated persons.
For HMRC reporting purposes, a connected person also includes close companies of which the member or a connected person is a director.