It is unclear how many of the 350-odd Sipp investors who were with the firm last year are still customers but those who are could well be hit with a 40 per cent tax charge as early as next week. Not good.
HM Revenue & Customs has applied to have the Sipp provider wound up, which Money Marketing understands is to do with outstanding VAT payments.
If the Revenue’s application is accepted, it is likely to de-register the pension scheme, triggering an immediate 40 per cent tax charge on all assets.
Freedom Sipp’s terms and conditions state the charge would be passed to the firm’s clients, as is the case with the majority of Sipp operators.
At February last year, Freedom Sipp held assets worth £165m. On this basis, the tax charge payable would total £66m. Ouch.
Remaining clients could escape the punitive tax if another Sipp firm took over as scheme administrator of Freedom Sipp although the timescale and the extensive due diligence that would be necessary make this an unlikely option – if anyone wanted it in the first place.
Members can transfer out before the hearing but those holding commercial property may not have time.
The court hearing is the latest in a long line of regulatory predicaments for the firm. Freedom Sipp has been closed to new business since September last year.
The FSA changed the firm’s permission in July 2008 after finding it failed to seek the right customer authorisation before moving funds and failed to notify customers of charges deducted from their funds, among other things.
The FSA says it has made customers aware of the looming court case and its implications.
I believe the Freedom Sipp saga gives credence to Suffolk Life marketing director John Moret’s calls for Sipp operators to draw up living wills similar to those which look set to be imposed on the UK’s biggest banks.
In last week’s MM, Moret said: “The legal structure of Sipps is not straightforward and can vary from provider to provider.
“In the event of the scheme winding up, it is not always clear how benefits would be secured, particularly if there have been operational or regulatory difficulties.
“Applying a similar type of provision to living wills in Sipp schemes would certainly help in ensuring some consistency in the interpretation of winding-up provisions and some comfort for investors in knowing their investments would be protected and not subject to tax charges.”
There is also the question of liability. If HMRC wins in its endeavour to close Freedom Sipp down, and clients are subsequently stripped of 40 per cent of their pension fund, can the advisers who recommended the firm expect a knock on the door? Where does the buck stop?
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