Private company shares and SIPP

feesarefare

Cautious_Investor wrote: »

I
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

Yep- take up the offer by all means thats a certainty, just you really need to look at all the pros and cons not just plump for the SIPP because of the potential tax savings. As with all opportunties tax saving shouldnt be the overiding factor.

( lisyloo also be aware that some advsiers will recommend the SIPP route as it will be far more profitable for them in the short term!)

Cautious_Investor_3

feesarefare wrote: »

( lisyloo also be aware that some advsiers will recommend the SIPP route as it will be far more profitable for them in the short term!)

To be fair the SIPPs which will accept private company shares will not pay a commission to the adviser. The OP will need to pay a fee to an IFA / Accountant to cover the cost of the advice whether to hold the shares inside or outside the pension so commission should not come into it.

Not that I don't sympathise with the sentiment, there are plenty of commission hungry financial advisers still out there.

The Cautious Investor

feesarefare

Cautious_Investor wrote: »

To be fair the SIPPs which will accept private company shares will not pay a commission to the adviser. The OP will need to pay a fee to an IFA / Accountant to cover the cost of the advice whether to hold the shares inside or outside the pension so commission should not come into it.

Not that I don't sympathise with the sentiment, there are plenty of commission hungry financial advisers still out there.

The Cautious Investor

Who mentioned commission?:D

Commission/adviser fee/customer agreed remuneration/set up fee call it what you like, it will be an opportunity to make some money.

Cautious_Investor_3

feesarefare wrote: »

Who mentioned commission?:D

Commission/adviser fee/customer agreed remuneration/set up fee call it what you like, it will be an opportunity to make some money.

And why shouldn't they? If someone needs expert advice, whether its a financial, legal or some other matter a professional shoould be paid for their advice.

The Cautious Investor

lisyloo

Thanks for the warnings folks. We have advisors who charge us very good rates (no initial commission, 0.5% ongoing) and review our portfolios monthly.
They do this because they hold the company pension account (hundreds of people) so have an interest in a long term relationship rather than making a quick buck.
Thanks for your warnings, but I also understand that people need to be paid when they do work.

I am really very unclear on whether the pension income will be basic rate or higher rate in 20-40 years time.
I know how to use excel spreadhsheets to put in variables for return, inflation, income, contributions, different tax rates etc. but I think think is pretty impossible to work out.

I have been told that the entrepeneur tax relief does not apply, so it would appear that someone else in the company has already been down that route.
I think we will jsut have to take the view that if we have to pay a big CGT bill then we will have done very well.

Cautious_Investor_3

lisyloo wrote: »

I am really very unclear on whether the pension income will be basic rate or higher rate in 20-40 years time.

I have been told that the entrepeneur tax relief does not apply, so it would appear that someone else in the company has already been down that route.
I think we will jsut have to take the view that if we have to pay a big CGT bill then we will have done very well.

Hi

I don't think anyone can answer that question about income tax rates in years to come, however there are things you can do to mitigate CGT:

1. Remember you have an annual allowance, circa £10k in the current tax year, up to which there is no tax on gains

2. If shares are transferred between spouses there is no CGT payable

3. Therefore taking points 1 and 2 together your husband could transfer shares into your name prior to sale to ensure that you get use of two CGT allowances

4. You don't have so sell them all at once, sell tranches of them to minimise the tax. If they are sold either side of a tax year circa £40k could be liquidated without CGT becoming payable

I'm sure there are other things you could do too.

Shame about the ER, worth asking though.

On the bright side, you have a load of free shares and even if you end up paying a £1m in CGT you will have made a packet!

The Cautious Investor

lisyloo

If shares are transferred between spouses there is no CGT payable

I don't work for the company only my husband. I don't think they will allow private shares to be held in my name, but if it is possible I'm certain someone will have done it with their wife already so will check.
I have been through this myself before (different company) and shares were only issued to employees.

You don't have so sell them all at once

I think we might.
I think at an EXIT event that the private shares get exchanged for cash, but I'll check.
Again I've been through this before and was given cash for my shares at the buyout.

and even if you end up paying a £1m in CGT

I wish. We aren't in that ball park I'm afraid, but it is significant enough to warrant some thought.

Cautious_Investor_3

lisyloo wrote: »

I don't work for the company only my husband. I don't think they will allow private shares to be held in my name, but if it is possible I'm certain someone will have done it with their wife already so will check.
I have been through this myself before (different company) and shares were only issued to employees.

Pretty standard, but most employers will have a mechanism for allowing a transfer of shares to take place to a spouse just before sale. You don't need to hold them for the duration, just before they are sold.

The Cautious Investor

thenudeone

lisyloo wrote: »

Is it possible to put private company shares inside a SIPP?

They definitely can. - I have just invested in shares of my employers private company through a SIPP held with Curtis Banks plc.

There are a number of HMRC restrictions on such investments such as - you must not hold a controlling interest (either alone or with family or "partners"), you mustn't benefit from property the company owns, it must be a "genuine commercial vehicle"; i.e. trading company. These are designed to stop people getting tax relief to buy houses, cars, wines, etc. for their personal use.

Once in the SIPP, the value of the investment will be subject to all the same benefits and limitations as any other pension investment, the importance of which will depend on your circumstances.
A big upside for me was that £25k worth of shares could be bought for just £15k after all the tax reliefs were added back.

It is common for senior employees who are offered shares or who buy a company out to have a shareholder agreement specifying, for example, the terms under which shares can be sold, and to whom. Many SIPPS which do accept unquoted shares will not allow investment if any such restrictions apply. They may also insist on an independent valuation. Curtis Banks were very accommodating on these matters.

The costs could be prohibitive, particularly for a smaller investment. Expect a £250-750 SIPP set up charge, £200-500 annual charge, + an additional £250-£1000 one-off cost for the purchase of unquoted shares (plus possibly an additional annual charge and / or valuation charges for unquoted shares). Curtis Banks is at the lower end of these scales.

Other providers include:
Hornbuckle Mitchell Trustees; Suffolk Life; Merchant Investors OneSIPP; MW Pensions Ltd; Rowanmoor Pensions; Investac Minerva SIPP; London & Colonial; Montpelier; Redswan; Organon; Wensley Mackay; Westerby Trustee Services; Xafinity.

lisyloo

Pretty standard, but most employers will have a mechanism for allowing a transfer of shares to take place to a spouse just before sale.

Thanks.
I'm absolutely certain that if this is possible that other people higher up the ladder will be doing this.