• Member Login
• Sign up

Taxable and Non-taxable property

Will an investment lead to a tax liability?

Firstly, is the Asset Taxable or Non-taxable?

These are the categories:

Non-taxable Assets - exempt from income and capital gains tax

• Anything that can be traded on the UK stock exchange, or overseas quoted shares
• “Unit trusts, Investment trusts and UK Open ended investment companies (OEICs)
• Insurance company managed and unit-linked funds, or ‘saving up’ policies
• Deposit accounts in any currency in the UK or EU
• Commercial property, including land, farmland or forestry, in or outside the UK
• Commercial property Ground rents
• Gold bullion
• Transactions with connected persons at market value, though not loans

Taxable Assets - either residential or tangible moveable property

• Residential property, UK or overseas, including Timeshares, Beach huts, ground rents
  For an empty building it depends on what it was last used for or, if new, what it’s most suitable for
• Tangible Moveable Property - jewellery, cars, machinery – whatever can be used personally

If taxable, the Asset will be subject to tax, unless held indirectly through a ‘Genuinely diverse vehicle’:

• In a UK Real Estate Investment Trust (REIT), a UK-based unregulated investment, which must have:
  • At least 75% of funds invested in property and at least 75% of its income from property
  • 90% of income must be distributed to investors, and also:
  1. No single party can have 10% or more of the share capital, voting rights or income received
  2. Investors can not receive income from a specific property
  3. Investors can not occupy any of the properties, OR
• In a vehicle which:
  • Has assets of at least £1 million, or holds at least three residential properties, and no single taxable asset that it holds exceeds 40% of the total value
  • Is based in UK, and not a “close” company (i.e. a private limited company with 5 directors or less) or, if based abroad, wouldn’t be a close company if it was UK resident
  • Whose main purpose isn’t holding an animal used for sporting purposes, OR
• When held through a trading concern not controlled by the scheme or associated persons, and whose purpose is not to enable the member or anyone connected to use the property. Property Limited Liability Partnerships aren’t exempt but investments in LLPs formed for other purposes may be. Trading is allowed but the scheme needs to complete Tax Returns.

If the Asset is not indirectly owned through one of the above:

• Does it include Tangible Property? No one asset can be worth more than £6000, even if the company owns it in order to do its work, such as vans (but these would tend to be leased anyway). However the total value of assets e.g. several computers, could be more than £6000.
  The Member or anyone connected can not use such property, except to do their job.

If all else fails…

The Asset would be treated as an Unauthorised Payment, with the Member personally liable for a 40% unauthorised payment charge, a possible surcharge of 15%, and a scheme sanction charge.

Example

A residential property costing £100,000 sneaks its way into a SIPP and becomes an unauthorised member payment, which gives rise to:

* If the unauthorised payment is more than 25% of the value of the SIPP’s funds

The Administrator’s 40% Scheme Sanction Charge reduces by the lesser of (a) 25% of the unauthorised payment, or (b) the amount the member paid, so if the member paid £20,000 instead of £40,000 the Administrator would also owe £20,000. If he paid all £40,000 the Administrator would owe £15,000.

However the Administrator can protect his own funds by treating the payment as being net of the 40% Scheme Sanction Charge, so the £100,000 becomes £100,000/60% = £166.667, with the Administrator setting aside 40% x £166,667 = £66,667. The Unauthorised Payment Charge also becomes £66,667.

The Scheme Sanction Charge can be taken from the SIPP’s funds and, depending on how much the member pays, any balance left over from the amount set aside can be paid to the member.

Apart from the possible problem of liquidity within the SIPP there might seem to be a temporary advantage in this, but the SIPP still has an asset whose emerging pension benefits will be taxed, and the property will not enjoy rent free of income tax, or freedom from taxes on disposal.