Since April 2006, the restricted list of permitted investments has been replaced and now any investment that is deemed to be a commercial investment will be allowed. This means that drawdown plans will be allowed to invest in most assets including the following.
- Stocks and shares listed or dealt on an Inland Revenue recognised stock exchange,
including AIM
- Stock exchanges that are not recognised by HMRC, e.g. OFEX.
- Unit trusts, open ended investment companies (OEICs)
- Warrants, covered warrants
- Government stock and fixed interest stock
- Un-quoted shares
- Commercial property
- Property funds
Residential Property and Prohibited Investments
Initially, the Government was going to allow personal pension funds to invest in residential property and this created considerable interest from investors. However in December 2005, the Chancellor announced a U-turn by announcing that additional tax would be charged if a pension fund invested in residential property.
If a "self directed" pension invests in residential property or "prohibited investments" such as vintage cars, works of art or fine wines an extra charge will be applied.
A tax charge of up to 70% of the value of the prohibited investment can be levied.
This means that although it will be possible to invest in residential property the additional tax charge makes it an unattractive option.
Non-commercial use of assets
There will a tax charge (Unauthorised payment charge) of 40% on any non-commercial use of an asset.
Wasting assets will incur an extra tax charge (scheme sanction charge) of 15%, if the investor has the use of this asset.
Borrowings and loans
It will be possible to borrow up to 50% of the value of the SIPP e.g. for property purchase, but SIPPs cannot make loans to scheme members.
In order to achieve the maximum investment flexibility, many income drawdown policies are set up as Self Invested Personal Pension plans.
SIPP Investments
The types of investments that you will actually be able to invest in
will depend on the type of SIPP you have
- Low cost Sipps
- collective investments and direct equities through an investment manager
- SIPPs from Insurance Companies
- will usually require some investment in their own pension funds but
will allow investments in direct equities and some allow property investment
- Sipps from specialist providers -
- They will allow most types of investments including direct equities and property