Investing pension in non-listed companies

Herbalus

Is there a way of buying shares in very small and local unlisted companies via a SIPP?

I heard this from a mate in the pub so have considered with some scepticism. I suppose you could purchase these shares in the same way as you purchase listed shares, but as in this case the cash would go directly to the business owner and not traded on the exchange, I can't get my head around it.

There is some noise about it being government approved (or requesting government approval via the SIPP platform), and because it's on an approved/registered scheme, the dividends are set at a certain government-controlled rate. But I don't really understand.

It seems quite risky so not something I would consider, but I didn't think it was possible. I guess I'm just asking if my mate down the pub is talking nonsense or not :beer:

xylophone

It is possible to hold unlisted shares in a SIPP - see

https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/contract-based-schemes/self-invested-personal-pensions-sipp

However the SIPP manager would need to permit it.

https://www.barnett-waddingham.co.uk/comment-insight/blog/2016/10/11/unquoted-damage/

System

You can invest in private equity (unlisted companies) through publicly quoted companies such as 3i Group and HarbourVest Global Private Equity:
https://www.3i.com/
https://www.hvpe.com/
The companies that they invest in will be much larger than the companies that you have in mind, but they are globally diversified just in case your local neighbourhood goes down the swanny.
If you invest directly in unlisted companies then how are you going to monitor the companies and value your investment, and how are you going to sell when you want to exit?

AnotherJoe

Economic wrote: »

You can invest in private equity (unlisted companies) through publicly quoted companies such as 3i Group and HarbourVest Global Private Equity:
https://www.3i.com/
https://www.hvpe.com/
The companies that they invest in will be much larger than the companies that you have in mind, but they are globally diversified just in case your local neighbourhood goes down the swanny.
If you invest directly in unlisted companies then how are you going to monitor the companies and value your investment, and how are you going to sell when you want to exit?

This t think is key.

Herbalus

Economic wrote: »

If you invest directly in unlisted companies then how are you going to monitor the companies and value your investment, and how are you going to sell when you want to exit?

I think the idea here was to buy half of the business and work there, so it's less of a buy and hold investment and more of a way to release cash from a pension to buy half a business from people he already knows.

I guess that removes the risk of monitoring the company, and there isn't a particular end game in something like this other than a trade sale of the whole business.

But that made me wonder whether this is doable.

Thanks all for your input

Linton

Herbalus wrote: »

I think the idea here was to buy half of the business and work there, so it's less of a buy and hold investment and more of a way to release cash from a pension to buy half a business from people he already knows.

I guess that removes the risk of monitoring the company, and there isn't a particular end game in something like this other than a trade sale of the whole business.

But that made me wonder whether this is doable.

Thanks all for your input

It is in theory doable - but I think you would not want to release cash from the pension so that you could buy some unlisted shares, but rather have the SIPP buy the unlisted shares as an investment.



Whether it's a good idea is another matter - if the company fails you lose your friends, your job and presumably a significant part of your life savings. What happens if your friends dont want to sell the company or buy your stake when you want to retire?

Brynsam

I wonder if your mate down the pub was actually rabbiting on about a SSAS (Small Self-Administered Scheme)? Google for more info.

Aretnap

Linton wrote: »

It is in theory doable - but I think you would not want to release cash from the pension so that you could buy some unlisted shares, but rather have the SIPP buy the unlisted shares as an investment.

The point that the shares would be owned by your pension, not by you, is an important one and the company would presumably have to be run for the benefit of your pension rather than for your own benefit - the two things are subtly different. While I'm not up on the precise technicalities I presume that any attempt to use the scheme as a way of getting money or other benefits out of your pension before you are old thought to do so legally would fall foul of the rules and leave you open to a large tax penalty, or worse. For example, using your sipp to buy shares in your own company from yourself at above fair value (whatever fair value is for a non listed company), or working for a company owned by your sipp and paying yourself more than the market rate for the job you're doing. Or for that matter giving yourself a job at the company where there are potentially other people better qualified for that job. The whole thing feels like it could be a bit of a minefield

Herbalus

Linton wrote: »

It is in theory doable - but I think you would not want to release cash from the pension so that you could buy some unlisted shares, but rather have the SIPP buy the unlisted shares as an investment.

You are correct, I was imprecise in my earlier post. The phrase "release cash from pension" came about as the current business owner gains a large chunk of money out of somebody else's pension, whilst of course the SIPP owner would then hold that investment in his SIPP.

It's a mental distinction because usually when you buy a ftse100 share you don't see the effect of who actually receives that money. Of course it could be me selling that share and then I've got the cash from somebody else's SIPP.

It somehow becomes different when the bloke from the pub uses £100k from his SIPP to buy into his friends business, and his friend gets £100k.

Linton

https://www.jameshay.co.uk/OldCMS/DocumentView.aspx?DocumentID=2743 may be of interest.


I do not think HMRC would look kindly on you using your SIPP to transfer your pension to a friend. The SIPP is held in trust for your benefit, it isnt yours to do as you will with it.