SIPP Tax Implications

19sparks91

My dad has c. £350k locked in a SIPP not really doing anything. He also has a similar amount c. £350k in stocks/shares, just in a regular app account, income tax already paid on.

We know you cannot buy residential property with a SIPP. However, he would like to use the stocks/shares money to purchase a buy-to-let and then actively invest the SIPP money into stocks/ shares instead.

He is a bit worried that HMRC will view this holistically and still apply the 55% tax on the residential purchase. Any thoughts? Should we seek a tax accountant? 

TIA.

Linton

What 55% tax?  Why do you think he may be liable to it?

What happens within a SIPP is of no interest to HMRC.  Tax only arises when you take money out.

Malthusian

Linton said:

What 55% tax?

The "unauthorised payment charge" that would arise if he invested the SIPP's actual money in residential property.
There is no chance whatever of HMRC treating this as an unauthorised payment. It's as likely as HMRC giving me a 55% tax bill for buying a bottle of wine with my own money, on the grounds that I could have bought it with the cash in my SIPP even though I didn't.

Albermarle

My dad has c. £350k locked in a SIPP not really doing anything. and then actively invest the SIPP money into stocks/ shares instead.

Normally money in a SIPP is already invested ( in funds/shares/bonds etc ) So what do you actually mean by' not doing anything' ? Is it all in cash? If so why ?

You both seem rather confused about tax rules etc . With such a large amount of money at stake, maybe you should consider taking professional financial advice?

MX5huggy

It’s not doing nothing in a SIPP. It’s not generating income tax liability, no Capital Gains Tax (which you can’t mitigate by selling “a bit” of a property each year) no stamp duty to pay, no tenants wrecking the place, you could inherit the whole lot with paying any IHT, no annual safety checks no agents fees, no insurance. 

Ciprico

Sell the shares in the general account. There may be some cgt at 10 or 20%

Use that money to buy.., 'anything..' 

Buy the same or different shares in the SIPP

Maybe this mysterious 55% tax is thought to arise from taking money out of the Sipp before your dad is 55...this is touted in some places but not viable or legal except in very specific cases., (ie pension holder terminally ill) ...

Malthusian

Ciprico said:

Maybe this mysterious 55% tax is thought to arise from taking money out of the Sipp before your dad is 55...this is touted in some places but not viable or legal except in very specific cases., (ie pension holder terminally ill) ...

The father is thinking about the unauthorised payment charge for investing a SIPP in residential property. See PTM125300 under "Occasions where tax could be charged on direct holdings".  
To be pedantic, you don't have to be terminally ill to access a pension before 55; ill enough to not be able to work will do if the scheme rules allow "ill health". (If the illness is terminal then the benefits become tax-free.)
I can see where the dad has got this idea, because it is an essential principle of anti-avoidance that if you undertake a series of artifical transactions, HMRC can "look through" them and tax the end result.
However, the end result here is:

• the SIPP is invested in stocks and shares - nothing wrong with that
• the dad's personal money is invested in residential property - HMRC says yum yum, thank you very much. (Buy-to-let is subject to the most penal taxation regime of any investment practically available to UK retail investors.)

So there is no tax avoidance going on here for HMRC to look through - entirely the opposite.