6 questions you ask us that we say “no” to

Being at the bespoke end of the SIPP market, we are used to questions that might seem unusual for the more typical types of pensions.

You have previously read about the different types of SIPP that are available in the market. While it’s fair to say that a query about purchasing a commercial property is standard for IPM, you would get a different response from an insured SIPP!

That said, just because a SIPP can, in theory, offer a wide range of flexibility, there are many occasions where IPM will say “no” to a request.

The reasons for this can vary depending on the nature of the enquiry:

Based on our past experiences, administratively this could be troublesome for the SIPP or could lead to issues in the future. Our role as trustee to the SIPP is always first and foremost.
HMRC guidance may mean that certain actions could result in a tax charge to the SIPP.
The Financial Conduct Authority (FCA) has issued regulations to SIPP operators that we must fulfil. This sometimes means we are unable to action certain requests.

If you regularly work with IPM you will know that we always aim to accommodate client requests wherever we can. However, these requests will have to fit in with the points above.

With this in mind, here are six examples of questions we say “no” to and, more importantly, the reasons why this is our answer.

1. Can a SIPP hold residential property?

Commercial property is a major part of the IPM offering, and we own more than 1,100 properties on behalf of clients within our Scheme.

However, residential property causes issues for pension schemes due to HMRC guidance on holding this type of investment. The guidance in the pension tax manual defines residential property as: “a building or structure that is used or suitable for use as a dwelling”.

The consequences for holding residential property in a pension are severe. Tax charges on the offending investment can start at 40% of the value and increase depending on the circumstances.

This broad definition from HMRC leaves SIPP providers to interpret what they deem to be “residential”. While it is clear a house or a flat can be deemed residential, other property types are not so clear cut.

IPM will not purchase properties including:

Student accommodation
Airbnbs
Holiday lets/second homes
Certain types of bed and breakfast
Titles of properties where part of the property is commercial and the rest is residential.

There are instances where the world of residential properties and SIPPs do collide: an example being where a SIPP is asked to purchase a ground-floor shop and on the first floor there is a residential flat.

While the SIPP could not own the flat in this example, you can talk clients through how the title of the property could be split so that the SIPP owns the commercial element of the building on a long-term leasehold basis only.

2. Can I hold unquoted shares?

A question clients and advisers ask us on occasion is whether an individual can purchase unlisted shares in an IPM SIPP. Our answer is “no”.

There are several reasons for this, including the fact that the administrative responsibilities for investing in such assets are not something we were comfortable with.

For example, if IPM were required to value the SIPP to pay a pension commencement lump sum, how do we value unquoted shares?

While there are companies that offer this service, valuing limited companies can be expensive and complex. We also have concerns as to how IPM would dispose of the shares if we were ever required to, as often there is not a large market of potential buyers for shares in an unquoted company.

Then there are the FCA’s regulations on SIPP investments, where these must fall into a category of either “standard” or “non-standard”. For a SIPP operator to invest in non-standard assets there are onerous initial and ongoing assessment requirements they are expected to undertake.

Our understanding is that many SIPP providers hold the same opinion as IPM when it comes to investing in unquoted shares. For individuals who are keen to explore this further, a SSAS may offer an alternative solution.

3. Can you stagger the payment of a pension commencement lump sum (PCLS)?

As you will know, the payment of benefits from a SIPP is split into two parts:

A pension commencement lump sum (PCLS), which is usually paid tax-free up to 25% of the SIPP’s value
Income, which is taxable at the recipient’s tax rate.

We are used to paying the taxable income on a varying regular basis, such as monthly, quarterly, or annually. However, we are sometimes asked whether we can stagger the payment of the PCLS over a period of time. This is not something we can accommodate.

PCLS becomes due to the SIPP beneficiary at the point we test the benefits against the Lifetime Allowance (LTA) and the PCLS is then calculated. Once calculated we cannot then retain this in the SIPP for future payment.

This is also true for an uncrystallised funds pension lump sum (UFPLS). UFPLS is a benefit crystallisation event where benefits are tested against the LTA, at which point PCLS is due. While we can phase the payment of the income part of an UFPLS, the PCLS must be paid straight away.

With a bespoke SIPP like IPM’s, the only way to “phase” the PCLS is to have a BCE each time a PCLS is required.

4. Can I buy an overseas property in an IPM SIPP?

We are occasionally asked to purchase properties outside of the UK.

IPM has no issues with purchasing a property from any country within the United Kingdom. Note that, for purchases in Scotland and Northern Ireland, our panel solicitors are unable to cover these countries so individuals can appoint their own solicitor.

However, for any other country the answer is “no”. Again the reasons for this are down to administrative difficulties rather than HMRC restrictions.

After A Day in April 2006 (who remembers that!?) the old “permitted investment list” for SIPPs was removed and overseas property purchase was theoretically possible. So, we thought we’d give it a go when we were asked to purchase a Portuguese warehouse.

We quickly found out:

We didn’t speak Portuguese and the vendors didn’t speak English
The valuations and property manager requirements from HMRC were more problematic to complete
All transactions relating to the property would be completed in EUR. While we can consider this on occasion, for regular payments like rent this would be complex
The Portuguese weren’t so great on UK trust law around pensions; at the time, a fixed percentage tax charge was applied on all commercial properties in Portugal.

So, we were unable to proceed with the purchase and have since taken the position that we will only consider UK-based properties.

5. Can you make regular international income payments?

Unlike some providers, we are happy to pay benefits from our SIPP overseas. Furthermore, in some instances, the SIPP can be run in a non-GBP currency and benefits from the SIPP paid in that currency.

You can read more about how the IPM SIPP can assist non-UK resident clients.

While we offer this flexibility, this is a manual process for IPM. Consequently, we are unable to automate international or non-GBP payments as we have to liaise directly with Metro Bank, who provide our trustee bank account, each time a payment is made.

For that reason, where a client is in drawdown, we do not offer the option to make regular international or non-GBP income payments. We are happy to make income payments once a year overseas and in non-GBP, in some instances bi-annually. But we do not offer monthly or quarterly payments.

6. Do you deal with unadvised defined/safeguarded benefit transfers?

The topic of transfers from schemes that offer individuals a defined or safeguarded benefit to a defined contribution arrangement, such as a SIPP, and the risks that these involve have been well documented over recent years.

The FCA’s starting point on such transfers is that “it is unlikely to be in a client’s best interest” to make such a transfer.

So, when we receive requests of this nature, we always treat them with caution. We want to understand why a transfer is being recommended and what the plan is for the benefits should the transfer complete.

Today, the number of requests of this nature we receive is low. However, if IPM is to help, as a minimum, we require a positive recommendation from a suitably authorised financial adviser that such a transfer is in the client’s best interests.

We will not accept a transfer from a scheme with defined or safeguarded benefits where no advice has been provided, or where that advice is that the client should not make a transfer to a SIPP.

Get in touch

If you want to have a chat about the potential of SIPPs for your clients, or any other aspects of pension planning, please contact us.

Email info@ipm-pensions.co.uk or call 01438 747151.