New investment freedoms
Investors gain access to unquoted shares

Growing numbers of self-invested personal pension (SIPP) providers have opened their books to unquoted shares, giving investors access to a fringe asset many consider too risky to hold in a retirement fund.

In April last year it became possible for the first time for SIPPs to hold 100 per cent of their assets in unlisted shares, such as those held by a private limited company. The move enabled individuals to invest in new share capital or to buy shares from an investor wanting to exit a holding.

The new investment freedoms generated keen interest among owner-traders and family businesses who saw opportunities to get tax breaks of up to 40 per cent to buy capital in their own companies. In practice few have been able to exploit these new rules fully as most large SIPP providers have closed their doors to unquoted stocks, largely because of concerns of falling foul of tax rules relating to assets held by unquoted companies. There are a handful of specialist providers that still admit unlisted shares.

A major barrier for most providers to allowing unquoted stocks has been the need to ensure the SIPP member and the administrator do not become liable to a hefty “taxable property” charge.

These penalties of up to 55 per cent on the member’s fund and 15 per cent on the administrator can be levied when an unquoted company held in a SIPP is deemed to hold taxable assets, such as vans and equipment.

It is triggered when the company is considered not to be sufficiently at “arm’s length” from the SIPP member or what HM Revenue & Customs calls a “genuinely diverse commercial vehicle” (GDCV). This is where the headache sets in for family businesses and others who may have a controlling interest in their companies, putting them in the tax danger zone.

A second big worry for those managing these assets is the Revenue requirement for a market valuation of the company. Reaching a valuation of an unquoted company is difficult and there are tax consequences if the Revenue disagrees with it.
Providers do have measures to minimise these risks, including supplying clients with “warts and all” information about unquoted shares and pensions; a requirement for all unquoted companies to be independently valued; and clients being asked to sign declarations about assets held in the companies.

If you are considering putting unquoted shares into your SIPP you should always seek professional advice, particularly if you are connected to the company. You have to be very careful, if you fall into that trap of the taxable property charge, the charges are quite horrendous.

If you require any further information about the services that we provide or would like to review your financial planning position, please email or contact us.

Levels and bases of, and reliefs from, taxation are subject to change.
Article date: 06.07