The main difference between personal pension plans and
SIPPs is that the latter provides a policyholder with greater
investment freedom.
Allowable investments include:
- UK and overseas stocks and shares;
- Unlisted Shares;
- Unit Trusts;
- Investment Trusts;
- Open ended investment companies (OEICs);
- Insurance company funds;
- Deposit accounts;
- Gilts and overseas securities;
- Investment grade gold bullion;
- Commercial properties; and
- Cash.
Some investments, although allowed by HMRC, are subject to tax
penalties of up to 55%. They include:
- Residential property
- 'Pride in possession' assets such as paintings, antiques,
vintage cars
- Non-investment grade gold bullion.
NB National Savings and Investments (NS&I) have confirmed
that some of their investments, including Premium Bonds, cannot be
held in a SIPP. More details can be found on their webpage where
they have a section on the subject of SIPPs.
Click here to read HMRC's own investment
overview.
Protected Rights
Since 1 October 2008, it has been possible to transfer Protected Rights funds into a
SIPP. Protected Rights is the name given to the fund
accumulated from National Insurance rebates whilst contracted out
of the State Additional Pension.
Connected Parties
There are limits on SIPPs buying or selling assets from or to
'connected parties'.
Transactions between a pension plan and a connected party within
the following categories must be carried out on 'arm's length
bargain' terms. Transactions between anyone in theses categories
that are not carried out on 'arm's length bargain' terms may result
in an unauthorised payment (i.e. a tax charge of up to 55%).
Arm's length bargain is defined by HM Revenue & Customs as
"a normal commercial transaction between two or more persons".
- Category A - Any transactions between the pension plan and the
member or sponsoring employer.
- Category B - Any transactions between the pension plan and
people connected with members and or connected employers. Connected
for this purpose means anyone who falls within the definition of
section 839 ICTA 1988.
- Category C - Any transactions between the pension plan and a
third party, which is directly or indirectly for the benefit of a
member or sponsoring employer.
Example: A pension plan sells an asset worth £100,000 to a
member at a price of £50,000. There is value passed to the
member of £50,000 and this amount will be taxed as an
unauthorised payment.
