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Sipp investors get creative

Sipp providers have been left to interpret what can be invested in a Sipp and that includes a zoo, stables and a railway station.

One of the chief criticisms of Sipps has been that investors do not use the investment flexibility they provide. However, there are exceptions. Investors may not be able to slot residential property into their pensions, as was originally planned under A-Day simplifications, but they can get an eclectic range of commercial property into their pensions and a number have made maximum use of the rules.

James Hay & The IPS Partnership business development director Richard Mattison says that it has largely been left to Sipp providers to interpret the law on the type of products that can be included in a Sipp. There has been some controversy about the interpretation of the rules, particularly by non-Sipp specialists, that Sipp providers have clubbed together to address.

Mattison says: “Having initially been quite relaxed, Sipp providers are now more stringent about what goes in a Sipp. We do a lot of due diligence on anything out of the ordinary.”

That said, Mattison has seen plenty of unusual investments. He says: “We have had everything from a railway in South Africa to a strip bar in Crewe. We have had cricket grounds, a shopping centre in Berlin and plenty of hotels.”

Suffolk Life marketing director John Moret says the company has had, among others, a Sipp investor with a small zoo. Apparently, the animals fail the “tangible, moveable asset” test but the remainder could be slotted into the investor’s-tor’s pension plan. He has also seen a football stadium in a Sipp. He can’t reveal the details but said it is a team that “any football fan would know”.

Mattison: ’Having initially been quite relaxed, Sipp providers are now more stringent about what goes in a Sipp. We do a lot of due diligence on anything out of the ordinary’

He adds: “We recently put an airfield into a Sipp. One of the areas that we get asked about most of all is agricultural land. This is fine and if the land subsequently gets planning permission, it can increase in value quite significantly. However, they couldn’t start building residential property on it and this is one of the tricky areas for Sipps.”

Moret recently had an investor holding a paddock in a Sipp where there were stables alongside and this posed problems of whether these could be valued separately. Investors have to be similarly careful with hotels, where any residential accommodation can only be used for employees.

Mattioli Woods marketing and sales director Murray Smith says one of the biggest risks for investors is that the investment is too successful and takes them near the lifetime allowance. As the lifetime allowance is brought down, it becomes a greater risk for more investors. He adds: “If you have a connected transaction, you need to take the value out at a commercial level.”

Another significant risk is investors are not properly diversified between their business and their pension. If their business is also their pension, they are very exposed to its failure. In general, Mattioli Woods would recommend that there is a separation retained between a client’s pension fund and their business.

Among the more unusual investments, Smith has seen in a Sipp has been a domain name. He says: “A client was running a telephone sales-led business and needed to expand. He bought the domain name through the Sipp and licensed it back. The theory was that if the company was successful, the value of the domain name would rise.”

He has also seen a “ransom strip” used successfully as part of a Sipp. “This is a piece of land that gives a number of big aggregate players access to a quarry,” he says. “It is simply a dusty old road but generates a nice income.” He has also seen a grouse moor and an equestrian centre used in a Sipp.

Smith has also seen some interesting investments used as security for loanbacks on SSASs – a case of vintage wine, for example. But he warns that this can be a problem if there is a default because wine is not allowed within a pension fund.

In almost all cases, these investments will be businesses that clients already under-stand very well rather than being widely available.

Smith says that he is seeing more unusual investments since the credit crunch as investors use their pensions to support their businesses in the absence of bank lending.

He adds: “The property world is full of people with creative ideas about making money. Sipps are often seen as a good source of cash.”
The coalition Government is currently 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.

If this happens, there is every chance that Sipps will hold increasingly unusual investments.

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  1. The more I see these esoteric investmente being made through pension schemes the more I fear that HMRC may take a dim view of these and look to restrict the investment flexibility in thr future as they may believe that some are losing sight of the fact that this is a pension scheme and that some of these investments may not be “prudent”.

    One of the most obvious areas where they could look to clamp down is unlisted shares. I am aware of providers who will invest 100% of the SIPP assets in an off the shelf start-up company which is owned by the scheme member. I would love to see the advice letter in these situations!

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