For entrepreneurs, pensions remains steadfastly unpopular, commonly cited as lacking the level of control and return compared with other investment opportunities, such as property, as well as undesirable restrictions on the use of the money and the timing and form of the benefits.
In some circumstances however, through specialist advice, pension schemes can offer an attractive, tax-efficient option for investment activity relating to property, shares and loans.
As experienced tax consultants, ETC Tax have substantial experience in providing tax advice in relation to UK pension schemes funding commercial ventures – such as trading businesses, property conversions and developments.
It’s a misnomer that you cannot transact with your own pension scheme. You can, subject to certain conditions. We assist private individuals, and professional advisers and their clients on the tax implications and innovative use of UK SIPPS and SSASs to fund commercial projects.
Outside of the UK registered pension system, we are leading experts on the taxation of Qualifying Recognised Overseas Pension Schemes (QROPS) and Qualifying Non-UK Pension Schemes (QNUPS) and have advised many individuals and professional clients on the use and establishment of such structures.
We also have a great deal of experience dealing with legacy Employer Financed Benefit Schemes (EFRBS) and similar arrangements.
We also bring expertise in using pension schemes to fund existing trading businesses and investment businesses, and can help you lead the way with Pensions Led Funding (“PLF”).
In short the answer is ‘yes’ provided certain conditions are met.
A member of a pension scheme (and a person connected with such a member) is specifically allowed to enter in to a transaction with the Member’s pension scheme as long as:
As long as one does not breach these conditions, one has a degree of freedom in transacting with your pension scheme.
A Self Invested Personal Pension (SIPP) is a type of personal pension for one or several members. A SIPP allows the member(s) to control their investment by buying assets such as stocks and shares. Contributions to a SIPP will – up to certain limits – receive tax relief.
Small Self-Administered Schemes (SSASs) are designed for the directors of a business. They are generally not available to other employees and membership is limited to no more than 11 members. A SSAS can result in serious tax liabilities if not properly administered.
SIPPs – key points to note:
Pension led funding (“PLF”) uses the business owner’s accrued pension funds to invest in their own companies. It provides funding without having to give a personal guarantee to a lender and can provide protection for business assets held within the pension scheme.
PLF can utilise IP (if available) as a new asset to secure these funds. Once the IP value has been established, the pension’s trustees agree to buy some, or all, of the IP assets from the business, or loan money to the business secured against the IP.
Once the business receives a cash sum, it begins making lease payments back to the pension scheme.
We have substantial experience of using pension schemes to fund existing trading businesses and investment businesses, and can help you lead the way with PLF.
QROPS and QNUPS are non-UK pension schemes but both benefit from varying degrees of recognition from HMRC.
A QROPS is a Qualifying Recognised Overseas Pension Scheme, a recognised overseas pension scheme that is regulated in the country of its base. Historically, all transfers for QROPS from UK registered pension schemes have been achievable without a tax charge. However, since March 2017, there is now a two tier system. Where the scheme is transferred from the UK to another EEA state, or the member is resident in the same jurisdiction as the transferee scheme, there remains no charge. However, in most other circumstances, there will be a 25% tax charge.
QROPS may be benefit if you are currently an expatriate from the UK or you are planning to become an expatriate in the future.
Anyone with a UK pension scheme who now lives overseas as an expatriate, or is planning to leave the UK can now transfer their existing pension provisions into a QROPS.
A transfer of a registered pension scheme to a QROPS is a Benefit Crystallisation Event and HMRC rules introduced after “A Day”. This means it could give rise to an additional income tax charge where the transfer exceeds the individual’s Lifetime Allowance.
However, this is the only time that a QROPS is tested against the Lifetime Allowance. As such, for those approaching the Lifetime Allowance, exploring the use of a QROPS might make sense.
A QNUPS is a flexible structure for funds that are not currently in a pension scheme. They can be particularly useful for UK situate property and benefits from an IHT exemption in appropriate circumstances.
A QNUPs is also a qualifying overseas pension but does not have reporting requirements as there were no assets that previously were in an authorized, and therefore tax relieved, UK pension.
We can help you to identify situations in which these types of schemes may be appropriate for the individual circumstances.