Delisted shares in a SIPP and the definition of a benefit crystallisation event

Steve182

One of the equities held in my SIPP will be voluntarily delisting from LSE next month. It's not listed on any other exchange. This has understandably had a negative impact on the SP so I've decided to hold onto the shares, in the full knowledge that disposing of them later through an OTC trade may prove expensive.

However I am slightly concerned about the potential cost of having them valued at benefit crystallisation events. Below is an extract from the corporate action notification from my SIPP provider -  

"SIPP holders should note that unlisted shares are not SIPP eligible. Unlisted GDRs will be displayed within your portfolio at cost and will not be revalued except where this is required in relation to their holding within a registered pension scheme, i.e. at benefit crystallisation events, reviews and pension transfers (subject to change). In these circumstances, it may prove difficult to value the unlisted GDRs and, should this be the case, we reserve the right to commission a valuation and charge your SIPP for it."

Please can someone define a benefit crystallisation event which would require the shares to be valued? 

For example, would taking a part or all of a TFLS or taking a UFPLS require a valuation?

NedS

I can't answer your question, but why not sell them now within the SIPP and repurchase them in a trading account outside of the SIPP before they delist? Solves the problem of holding them within the SIPP and any complications that may then arise?

Malthusian

Please can someone define a benefit crystallisation event which would require the shares to be valued? 

I'm not sure I can think of many BCEs where they wouldn't be valued. Even if you crystallise 1% of the pension, the 1% of the unquoted shares still has to be valued. Death benefits, taking tax free cash, UFPLS, buying an annuity, going into drawdown... they all require all the assets in the SIPP to be valued.

NedS has already suggested getting rid of them and repurchase them outside the SIPP. They could be a massive pain in the backside until they relist or are liquidated (which could be forever). For example, once the pension is crystallised, you could be prevented from transferring the pension almost anywhere (unless the new provider would accept the unquoted shares as an in-specie transfer, which very few will). You will also be tied in to paying high fees for the SIPP until the unquoted shares can be got rid of.

Steve182

There are a few issues with selling and re-buying. The market has very low liquidity so it would be a very slow process, with significant spread between buy/sell prices. I'd also have to find the money to put into the dealing account from somewhere, I have some cash but it would also involve selling other shares in an ISA and moving cash from ISA to dealing account. It's possible but a bit of a pain. 

Another reason is tax, there is 0% withholding tax, 0% UK divi tax and 0% CGT in a SIPP.  I am tentatively expecting the company to grow and I think part of the reason for the delisting is that the share price is completely disconnected from both the NAV and from the company's potential for future growth/profits so the low MCap may be holding them back from obtaining finance/partnership for expansion. It's majority management owned anyway and few shares are traded.

It would be good to know what the valuation of a delisted share might cost if anyone has experience of it. If it was £100 per time I'd not worry too much, £500 per time would not be so well received!

Malthusian

The market has very low liquidity so it would be a very slow process, with significant spread between buy/sell prices. 

Right, but presumably this company is going to go to the moon and make you rich, otherwise you wouldn't bother hanging on to what I am guessing a tiny company that is about to become almost impossible to sell. And the profits would make the bid/offer spread cost of buying outside the SIPP and selling within seem like peanuts.

I'd also have to find the money to put into the dealing account from somewhere, I have some cash but it would also involve selling other shares in an ISA and moving cash from ISA to dealing account. It's possible but a bit of a pain. 

If that sounds like a pain you absolutely do not want unquoted shares in your SIPP. 

Another reason is tax, there is 0% withholding tax, 0% UK divi tax and 0% CGT in a SIPP.

Fair enough, I can see that paying CGT on the shares could be annoying if they rocket in value, especially if the Lifetime Allowance stays abolished. An ISA isn't an option as they're about to be delisted. That said, CGT is a voluntary tax (you only pay on sale). And if they go bust you could get loss relief which you don't in a SIPP. 

If the shares are eligible for "Business Relief" they could be free of Inheritance Tax if held for more than two years, whereas in a pension they would be subject to tax in the beneficiary's hands on death after 75.

Difficult to say whether any future CGT should be treated as a "nice problem to have" given that it's your decision as to whether to indirectly move it out of the SIPP. 

It would be good to know what the valuation of a delisted share might cost if anyone has experience of it. If it was £100 per time I'd not worry too much, £500 per time would not be so well received!

What does your SIPP provider say?

Steve182

Malthusian said:

The market has very low liquidity so it would be a very slow process, with significant spread between buy/sell prices. 

Right, but presumably this company is going to go to the moon and make you rich, otherwise you wouldn't bother hanging on to what I am guessing a tiny company that is about to become almost impossible to sell. And the profits would make the bid/offer spread cost of buying outside the SIPP and selling within seem like peanuts.

I'd also have to find the money to put into the dealing account from somewhere, I have some cash but it would also involve selling other shares in an ISA and moving cash from ISA to dealing account. It's possible but a bit of a pain. 

If that sounds like a pain you absolutely do not want unquoted shares in your SIPP. 

Another reason is tax, there is 0% withholding tax, 0% UK divi tax and 0% CGT in a SIPP.

Fair enough, I can see that paying CGT on the shares could be annoying if they rocket in value, especially if the Lifetime Allowance stays abolished. An ISA isn't an option as they're about to be delisted. That said, CGT is a voluntary tax (you only pay on sale). And if they go bust you could get loss relief which you don't in a SIPP. 

If the shares are eligible for "Business Relief" they could be free of Inheritance Tax if held for more than two years, whereas in a pension they would be subject to tax in the beneficiary's hands on death after 75.

Difficult to say whether any future CGT should be treated as a "nice problem to have" given that it's your decision as to whether to indirectly move it out of the SIPP. 

It would be good to know what the valuation of a delisted share might cost if anyone has experience of it. If it was £100 per time I'd not worry too much, £500 per time would not be so well received!

What does your SIPP provider say?

Thanks, very sound advice.  I cannot fault it.

I think "this should be a really good earner" would be more likely than "going to the moon". Indeed it had been a good earner pre-covid. It's still profitable now (just) but earnings and profit are forecast to return to pre-covid levels in the next 12 months or so, with significant plans for expansion, although no details yet announced on how they plan to fund the expansion so currently I value it on pre-expansion metrics. If it "goes to the moon" I'll still only be able to sell through an OTC trade which may be substantially lower than fair value.

To put it into context the NAV is 57p/share, I'm in at 19p average. After the bombshell RNS on Monday about the delisting the SP has now dropped to 5P which is about 8% of NAV. So you can see why I don't want to sell at 5p.

I think I will try to gradually transfer the shares from my two SIPPs to my wife's dealing account over the next 4 weeks. I may subscribe to L2 access to get a better understanding of the order book.