Tangible Moveable Property – what you can and can’t hold in SIPPs
‘But I want to buy a Van Gogh’ says your client. Geoff Buck, associate director, DP Pensions, explains the rules around Tangible Moveable Property, what can be used in a SIPP and why product providers err on the side of caution
The recent joint call for input by both The Pensions Regulator and the Financial Conduct Authority pointedly refers to highly speculative assets like art being held in SIPPs and how these can affect a schemes ability to be well-run and funded.
This is a dangerous statement to make without any context around it. Investment in paintings, antiques, fine wine and jewellery, classed as personal chattels by HM Revenue & Customs (HMRC), were not allowed in personal pension schemes prior to April 2006, when the pension rules were changed under what is known as ‘A-Day’, and haven’t been allowed since. In the lead up to A-Day there was talk about allowing these investments being permitted, as well as residential property, but the change in investments never came to pass, thankfully
But we should be clear, strictly speaking, any investment into a pension scheme is allowable and HMRC make no secret of that. However, the issue is that some investments carry a tax charge which would be levied against the pension scheme member as well as the pension scheme administrator and which is why no pension scheme administrator would allow such investments to be held in a scheme. A good example of this are assets referred to by HMRC as ‘taxable property’. The guidance from HMRC is complex and covers various different types of taxable property which are categorised as:
- Tangible moveable property
- Residential property
- Direct holdings
- Indirect holdings
- Pre A-Day investments
To add further complication each of the categories mentioned above comes with extensive coverage under HMRC’s Registered Pension Schemes Manual (RPSM). The full guidance can be found at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm125000
For the purposes of this article we are concentrating on tangible moveable property (tmp) but residential property itself may seem straightforward enough but we have seen advisers and clients caught out by some of the nuances and complications of the HMRC rules in this area especially in relation to hotels, time shares and halls of residence.
It is worth starting that any form of taxable property (which includes tangible moveable property) held by a pension scheme will be subject to a tax charge – referred to as an unauthorised payment.
Quite simply, tangible moveable property is something that can be touched and can be moved. The HMRC definition is ‘Tangible moveable property is things that can be touched and that are moveable rather than immovable property. It includes assets such as art, antiques, classic cars and also plant and machinery owned by a registered pension scheme.’ One exception to this definition is however gold bullion which is a permitted investment which won’t be subject to tax charges but there are additional caveats. The gold has to be of investment grade and there are storage requirements. Other previous metals are not named as permissible investments.
It can be seen that according to the HMRC definition, tmp excludes ‘immovable property’. Even this creates grey areas between HMRC, pension providers, advisers and pension scheme members. For example, plant and machinery is included within the definition but a printing press bolted to the floor of a factory you might consider immovable given its potential size and that it forms part of the apparatus for the printing business. However, because it can technically be unbolted and removed from the building it is classed as tmp.
Consider solar panels added to a building, a new lift installation or a wind turbine/generator added to the land. Would you consider these tmp? Well believe it or not these would likely be classed as tmp by HMRC because again technically they can be removed and taken away. Of course removing solar panels from a building may leave the building in some state of disrepair and removing a lift sounds crazy but that appears to be of little consequence to HMRC. It is very likely to still be regarded as tmp.
These examples are extreme of course but you can see why there is such confusion.
Erring on the side of caution
In essence to avoid classification as tmp, the item in question needs to form part of the fabric of a building and be a permanent addition not temporary in nature. Rather frustratingly, HMRC won’t give opinions on whether something is tmp and it is for Trustees and scheme administrators to make that call. It won’t surprise you to therefore understand why scheme administrators will tend to err on the side of caution to avoid any unnecessary tax charges further down the line.
Earlier in this article reference to residential property was made. This isn’t tmp but it does come under the definition of taxable property. Requests for including residential property within a self-invested pension scheme are refused however there is one instance when a residential property can come into consideration and that is when it is used in connection with employment. So if a nursing home has a flat for the manager and it is part of their employment contract to live in then this is acceptable.
So as you can see tangible removable property can cause all sorts of issues so it is best to always check with your scheme administrator to see if it would be viewed as tangible moveable property.
Visit the DP Pensions website