investment
regulated pension schemes (73)
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
published by distribution to professional contacts on 14 October 2020
DISCLAIMER
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does
not accept any responsibility for anything that any person does or does not do
as a result of reading it.
1
In their heyday, self-directed pension schemes came to be treated
as your private on-shore Cayman Islands, in which you could hang fine art on
your wall, have a holiday home on the continent or drive a classic car bought
by your pension scheme funded by tax relievable contributions. That age was brought to an end by the 8
February 1979 memo from the Joint Office (the Revenue Superannuation Funds
Office and the Occupational Pension Board), which said in para 15:
It is unlikely
that the SFO will be prepared to approve a small self-administered scheme which
invest a significant amount of its funds in works of art or other valuable
chattels or non-income producing assets which could well be made available for
the personal use of scheme members …
2
The current law is in the Finance Act 2004 s174A (supplemented by
sch 29A), inserted by the FA 2006 with effect from 6 April 2006. An investment-regulated pension scheme is
treated as making an unauthorised (ie taxable) payment if it acquires an
interest in taxable property or if a property held by it is converted to become
residential.
investment-regulated
scheme
3
An occupational pension scheme is an investment-regulated scheme is
it has fifty or fewer members and one or more of them or a person related to
the member “is or has been able
(directly or indirectly) to direct, influence or advise on the manner of
investment of any of the sums and assets held for the purposes of the pension
scheme.” (FA 2004 sch 29A. para 2) Paragraph
1 in respect of other scheme is similar, but the number of members is not
relevant.
taxable
property
4
There are two categories of taxable property, (a) residential
property and (b) tangible moveable property.
(FA 2004 sch 29A. para 6)
(a)
residential property
5
Schedule 29A para 7 defined residential property as (a) a building that is used or suitable
for use as a dwelling, (b) land, part of, the grounds of such a building used
or intended for use in connection with building, (c) a hotel or similar accommodation,
or (d) a beach hut. Paragraphs 8 and 10
provide the following two sets of properties which are not residential for the
taxable property provisions:
(a)
(paragraph 8) buildings which are (a) for the provision of resident
accommodation for children, (b) a hall of residence for students, (c) for the
provision of resident accommodation and care for persons in need of personal
care (for old age, disability, dependence on alcohol or drugs, mental disorder),
a hospital or hospice, or a prison or similar establishment; and
(b)
(paragraph 10) buildings in respect of which either condition A or
B in the next para are met.
6
The property is or is to be occupied by, in the case of A, an
employee and, in the case of B, a person, who
is neither a member of the pension scheme nor connected with such a
member. In addition:
(a)
condition A requires the employee not to be
connected with the employer and to be required as a condition of employment to
occupy the property; and
(b)
condition B requires the property to be used in connection with business premises held as an investment of the
pension scheme.
“Connected” has the
meaning in the Corporation Tax Act 2010 s1122, which includes persons related
to each other by the family relationship in that section.
7
The exceptions in para 10 were considered in the decision in J&A Young (Leicester) Limited v HMRC [2015] UKFTT 0638 (TC),
which provides guidance about these conditions.
In this case the pension scheme owned a factory and yard used by the
scheme employer for its business. The
scheme acquired a nearby house as a residence for the employer’s East European employees;
and HMRC asserted that it was taxable property.
The tribunal held that Condition A was not met, because the employees
were able to live at the house but were not required to do so, but condition B
was satisfied on the grounds that the house was used in connection with the
yard which was business premises held by the scheme as an investment.
(b)
tangible moveable property
8
All tangible moveable property is taxable property, except any
specified by the Treasury by order (FA 2004, sch 29A, para 11) By the Investment-regulated Pension Schemes (Exception of
Tangible Moveable Property) Order 2006, SI 2006/1959, reg 2 there are two exceptions:
(a)
gold bullion;
and
(b)
chattels, with a
market value not greater than £6,000, held indirectly by the scheme, used solely for the
administration or management of the person holding it directly, and which neither a scheme member, nor anyone connected to a scheme
member occupies or has use of or any right of occupation or use.
other
points
9
Amongst the details not included in this brief summary:
(a)
the taxable property provisions apply to not only property owned
directly by the pension scheme but also to property held indirectly;
(b)
property being developed is not residential until it first becomes
suitable for use as a dwelling;
(c)
plant and machinery can be and probably are chattels;
(d)
these provision are in addition all other law about pension scheme investment.
END
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