Self-invested personal pensions

Encyclopaedia of Forms and Precedents > BUSINESSES vol 4(2) start-up, sale and purchase > PART 1: START-UP > Commentary > B: CHOICE OF BUSINESS MEDIUM > 2: TAXATION OF THE BUSINESS > (e) Tax savings through investment in a registered pension scheme > 32 Pension provision for sole traders and partners

Brexit note

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One of the problems of a conventional personal pension plan (PPP) is that, as the member effectively pays his money over to an insurance company for investment in an insurance policy, he has relatively little choice over the way in which the money is invested. This may explain the increasing popularity of the self-invested personal pension (SIPP). A SIPP is a type of PPP which allows the member much greater freedom in investments and provides the opportunity for the plan to hold these investments directly. The member can either have control over the investment strategy himself or alternatively can appoint someone else, such as a fund manager or stockbroker, to manage the investments.

A SIPP operates through a trust with the trustee controlling the investment under the member’s direction. Indeed the member may himself be the trustee but, if this is the case, an approved administrator must be appointed to carry out investment transactions.

One of the advantages of the new pensions regime is the removal of the various restrictions which previously prevented pension schemes from investing in certain assets ¹. Unfortunately, a taxpayer who sets up a SIPP will not be able to take full advantage of the new regime, as it would be too easy for the controllers of small self-directed schemes such as SIPPs to abuse the new rules by acquiring assets which they could then use for their personal benefit. Consequently, provisions have been brought in by the Finance Act 2006 preventing SIPPs and other forms of self-directed pensions from obtaining tax advantages when investing in residential property and other tangible moveable assets, such as paintings and fine wines ².

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