Private company shares and SIPP

lisyloo

Is it possible to put private company shares inside a SIPP?
When they are sold (at an exit event) then does the cash sit inside a cash fund inside the SIPP until it is reinvested?

If they cannot be put inside a SIPP then is there anyway they can be put inside a pension?

My DH has been offered some shares in the private company he works for. If the company gets sold or goes public the gain would be expected to be large (much bigger than the CGT allowance).
Outside a pension we would have to pay 40% CGT and I don't think we can sell them when we chose (to avoid CGT) as the private shares would have to be sold at an exit event.

Using a pension would hopefully get 40% tax relief on the (relatively small) contribution but more importantly, we'd pay 20% tax on the pension income rather than 40% CGT.

Any comments?

yelf

No, unlisted shares can not be held in a SIPP

What investments are prohibited under a SIPP?


The investments that a SIPP is prohibited from investing in are detailed in Appendix 25 of the IR76 Personal Pension/Stakeholder guidance notes. Full details are below:

• premium bonds
• loans to any third party
• milk quotas
• fishing quotas
• residential property (except if permitted as an element of commercial property)
• gold bullion
• OPEX shares
• unlisted shares
• personal chattels (e.g. paintings, antiques, fine wine and jewellery)
• borrowing, except where permitted for property purchase or development

lisyloo

Cheers, that makes our decision easy then.

Cautious_Investor_3

yelf wrote: »

No, unlisted shares can not be held in a SIPP

I'm afraid that's not correct, private company / unlisted shares can be held in a SIPP.

HMRC's rules allow for this to happen, however not all SIPP providers allow it as there are issues around connected parties and taxable property but it can be done.

I know for a fact that Talbot & Muir have allowed it in the past, and I'm sure others will also allow it.

An IFa will be able to help track down such a provider.

I hope this helps the OP and maybe reopens the debate.

The Cautious Investor

lisyloo

I think we need to talke to our IFA as this is not clear cut.

If we pay CGT then it would be at 28% after the CGT allowance (or whatever the rules are at the time in 5 years or so).

In a pension it's
1) maybe 20% but could be 40%
2) is tied up until retirement
3) is subject to any changes in pension legislation e.g. income tax rates at the time

I am tempted to go with the former.

feesarefare

Cautious_Investor wrote: »

I'm afraid that's not correct, private company / unlisted shares can be held in a SIPP.

HMRC's rules allow for this to happen, however not all SIPP providers allow it as there are issues around connected parties and taxable property but it can be done.

Your correct

Winterthur allow it - well they allowed our client!

feesarefare

lisyloo wrote: »

I think we need to talke to our IFA as this is not clear cut.

If we pay CGT then it would be at 28% after the CGT allowance (or whatever the rules are at the time in 5 years or so).

In a pension it's
1) maybe 20% but could be 40%
2) is tied up until retirement
3) is subject to any changes in pension legislation e.g. income tax rates at the time

I am tempted to go with the former.

Indeed

You need to make sure the "tax tail" isnt wagging the dog.

Cautious_Investor_3

lisyloo wrote: »

I think we need to talke to our IFA as this is not clear cut.

If we pay CGT then it would be at 28% after the CGT allowance (or whatever the rules are at the time in 5 years or so).

In a pension it's
1) maybe 20% but could be 40%
2) is tied up until retirement
3) is subject to any changes in pension legislation e.g. income tax rates at the time

I am tempted to go with the former.

A chat with your IFA would be useful.

Not quite right in your assumptions:

1. If the shares are held in a pension there is zero (under current rules) tax payable on the gain

2. The fund cannot be accessed until age 55, at which time a lump sum can be taken up to 25% of the fund and an income, which is subject to income tax

3. Yes it is subject to changes in legislation and changes in tax rates but then so is everything outside of a pension

Might be worth checking if the private shares qualify for Entrepreneur’s relief outside of the pension, an IFA or Accountant would help you with this. If they do from memory the tax rate is 10% on the first couple of million, which might make it more interesting to hold them outside the pension.

The Cautious Investor

lisyloo

You need to make sure the "tax tail" isnt wagging the dog.

I am not sure what you mean by that.
This investment is hugely favourable as the private shares are being given to am employee at a hugely preferable rate.
There is no question of whether it's a good investment, just which wrapper to put it in.

Cautious_Investor_3

lisyloo wrote: »

I am not sure what you mean by that.
This investment is hugely favourable as the private shares are being given to am employee at a hugely preferable rate.
There is no question of whether it's a good investment, just which wrapper to put it in.

I think what he means is, and he is right to say, that some people just make an investment because it offers attractive tax breaks. A Venture Capital Trust (VCT) is a case in point, great tax breaks but hugely risky.

In your case the investment is one that you wish to make (or indeed take advantage of) your only decision though is whether or not to put it in a pension "wrapper" to shield it from tax.

The Cautious Investor

lisyloo

1. If the shares are held in a pension there is zero (under current rules) tax payable on the gain

Agreed there is no tax on the gain, but there is tax when that money is received as income (after the tax free lump sum). I was referring to the income tax.

Yes it is subject to changes in legislation and changes in tax rates but then so is everything outside of a pension

Agreed, but there is a slightly different timescale.
These are very rough estimates, but the CGT would be paid in 5-7 years.
The pension income tax will be paid over the next 20-40 years.
I agree there is scope for change in both but I feel less confident about any assumptions the further out we go in time.

Entrepreneur’s relief outside of the pension

Thanks, will look into that.