The interpretation of the Sipp rules has fallen on Sipp providers. While the majority will do their best to accommodate client needs, they also have a responsibility to tame the wilder requests of clients. This has led to some significant omissions from Sipp portfolios but also some lobbying work by Sipp providers to get the rules extended.
Seven Investment Management marketing director Justin Urquhart-Stewart says the group has been offered “just about every family heirloom possible” when building Sipp portfolios for clients. Most of them have failed the group’s internal tests.
One notable asset that the group rejected for a Sipp port-folio was an island off the coast of Ireland.
Urquhart-Stewart says: “It was tricky because it was a private island rather than having any commercial function. Also, there were problems with the validation of the deeds, which seemed to go back to 1745. It was really just a colony of seals and a sand bank, which made it extremely difficult to value, although there was a house on it.”
He says the group mostly rejects assets for inclusion in Sipps on the basis that they fail the tangible, moveable asset test.
But he says the company approaches unusual investments with the attitude that they will try and accommodate unique investments where possible and this is where specialist Sipp providers will score over more commoditised groups which may not have the resources to value tricky assets and may therefore reject them out of hand.
In the majority of cases, 7IM and other specialist providers will work with clients to structure assets to fit them into a Sipp portfolio.
Suffolk Life marketing director John Moret says the group generally avoids overseas property as the risks and costs are too great. He has also seen plenty of instances of investors trying to shoehorn residential property into Sipp structures, which Suffolk Life had to reject.
The group also rejected a request from a client to include a narrow boat in a Sipp. Moret says: “Although the narrow boat was used as an office, we rejected it on the grounds that it failed tangible moveable asset test – it is unquestionably moveable.”
Mattioli Woods marketing and sales director Murray Smith says Sipps can be seen as a well of money, particularly since the contraction in bank lending and the group has needed to be increasingly careful where it draws the line.
Smith says: “We always do a lot of due diligence before we say yes to any foreign property transaction, for example. However, we always try to say yes where possible. It is often easier for us to drill down into the underlying investments than other providers.”
Of course, the Sipp market has not been immune to fraud and has seen some rogue providers knowingly include illegal assets within Sipps. This was a particular problem with private equity assets. The Sipp industry has clubbed together to alert the regulator and prevent this kind of problem.
The coalition Government is consulting on what can be put into a Sipp and there is a chance that the rules may be relaxed more in line with those originally proposed at A-Day. Smith believes that would bring in a number of “wacky” investments that have previously been rejected.
It is also leading to some increased lobbying on the part of Sipp providers. Hornbuckle Mitchell has been lobbying pensions minister Steve Webb to allow wind farms and solar panels in Sipp portfolios.
Renewable energy sources are deemed moveable by the Inland Revenue but Hornbuckle Mitchell believes that a relaxation in the rules could help plug the UK’s energy gap.
The group says uses could include installing solar panels on office buildings. The business would pay a higher rent to reflect their lower energy costs and the difference could be passed on to the Sipp as an income stream.
Hornbuckle Mitchell director Mary Stewart says the group has had requests from clients to include this type of investment in a Sipp which it has had to reject but the group believes that the Government should encourage green energy investment within pensions. The group points out that there are already exemptions for certain assets such as gold.
The temptation is for inves-tors to treat Sipps as a repository for any assets that they want to shelter from tax. But while the range of permissible assets may expand, there is unlikely to be an investment free for all. In the meantime, investors will have to find another tax loophole for those heirlooms.