Freedom fighters
Share
The Freedom debacle, which comes to a head next week with the hearing of the Revenue's application to have the firm wound up, currently poses more questions than answers. The case can genuinely be described as taking the Sipp industry into uncharted territory.
Investors will be asking the FSA why they have only recently been informed about what has been going on at their Sipp provider when the regulator made its first interventions last summer. This summer, clients got a letter simply telling them that they need to seek advice and the advice on the Pensions Advisory Service website is that members could face a 40 per cent deregistration fee and loss of tax-exempt status.
If investors put in the Freedom Sipp by IFAs do lose out financially, they will be asking their advisers why they trusted their assets to such an organisation. Claims for compensation can be expected if losses are high. Those who did so without the assistance of IFAs prior to the regulation of Sipps in 2007 may not be so lucky.
Freedom clients and pension professionals alike will also be watching closely to see how the Revenue deals with the situation. It seems completely unfair that those with legitimate Sipp investments should be penalised with the loss of tax relief just because of maladministration on the part of a provider, particularly as it has been regulated by the FSA for the last 18 months.
If the Revenue's application is successful, then whichever insolvency practitioner is appointed to wind up Freedom should have the power to act as a registered scheme until all clients have been found another home.
But that is where the problems start mounting. None of the Sipp providers I speak to want to touch the Freedom client book with a bargepole. Unless, that is, they can get cast-iron guarantees from the Revenue that the cases they are taking on board will not come back to bite them.
The most contentious of these cases relate to French property, which the Freedom website to this day cites as an area in which it claims exclusive expertise. We do not know whether the Revenue has a problem with the way Freedom has been dealing with French leasebacks in Sipps. In fact, it has not been made public what the Revenue's grounds for winding up Freedom are. But ironically resolving the future of those investors who have invested in these structures may involve legitimising investments that have been clouded with uncertainty until now.
The problems centre around whether French aparthotels bought on a leaseback basis are taxable properties. My understanding is that, legally, such structures are possible. The concern for Sipp providers who may be considering helping out the Revenue and taking Freedom investors with French property on board is that they are not sure whether the cases satisfy the Revenue.
The only way that these cases will find homes is if the Revenue gives cast-iron guar-antees to other Sipp providers that they are legitimate. Were it to do so, it would give overseas property in Sipps an unprec-edented boost.
Alternatively, the Revenue could decide not to help out these investors and see them hit with a tax charge, arguing that it is not its fault that they have investments that no provider wants to deal with. Either way, the situation underlines how important it is to do proper due diligence when it comes to prov-iders. Fail to do so at your peril.
John Greenwood is editor of Corporate AdviserMoney Marketing
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
