PensionsOct 29 2015

Sipp providers face HMRC warning over high risk investment

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Sipp providers face HMRC warning over high risk investment

HM Revenue and Customs is understood to have written to self-invested personal pension providers and IFAs seeking information about investments in Elysian Fuels, amid fears some investors could be exposed to a 55 per cent tax charge.

Elysian Fuels was marketed by Future Capital Partners in a series of investments. Marketing material describes it as providing operational support to bio-fuels firm Vireol in relation to the recommissioning of an existing 62m gallon bioethanol plant in the US, as well as a renewable transport fuels refinery and technical centre in Grimbsy, North East England.

Future Capital Partners originally said in marketing material that it targeted post tax returns of ten times the initial investment over eight years, with the potential to borrow up to 84 per cent of investment on a limited recourse basis. It said investors should be “experienced”, with at least £50,000 to invest.

It is clear that some investors have sold their investment in Elysian Fuels to their Sipps, with experts stating concerns about the valuation of the shares at the time of such a sale being likely to have prompted HMRC’s interest.

An HMRC spokesperson said: “We cannot comment on our compliance activity or individual pension schemes.”

Shares in Elysian Fuels had been written down to zero down from £1 last year. However, Future Capital Partners director Tim Levy told FTAdviser that he still expects the investments to make a profit overall.

“Whilst it is true that about £200m was raised in total by Elysian LLPs, 84 per cent of this sum was limited recourse debt, which is still expected to be repaid in full and is still expected to make a profit overall,” he explained.

“The shares were priced always at the level the directors felt would allow the required capital to be raised. There were no guarantees of returns and it was understood by all investors that, in order to enjoy any return, the underlying ethanol assets would have to generate returns of at least £100m.

“The sale for a disappointingly low sum, due to market conditions of the US plant, has led to the directors of the Elysian corporates providing in full for the value of their interest in each Elysian LLP. So, in simple terms, last year the directors were content that the prospects of returns from the ethanol assets justified the £1 per share value of the LLP interest – but they now believe that, based on the facts now available, it should be fully written down.”

Mr Levy added that this does not mean that the investment has been lost, with the UK project possibly still being built and be successful in excess of the required level of £100m.

He maintained the Elysian was not specifically meant to be a Sipp investment and certainly that not all investors sold it into Sipps. “The fact that some investors decided to sell their shares to their Sipp post investment does not make it a Sipp investment.

“We assume any Sipp did their due diligence before accepting Elysian shares. Certainly we provided underlying valuation information to many of them.”

Law firm Rebus has written to a large number of investors suggesting that they are faced “with some challenging options” due to the write down.

James Hay Partnership told FTAdviser that clients have a total of £55m invested in Elysian Fuels through James Hay Sipps. A spokesperson for the firm said that non-standard investments make up only 1 per cent of its total assets under administration and Elysian makes up around a third of that 1 per cent.

James Hay said it completed due diligences in accordance with its procedures at the time and as a non-standard investment clients were required to confirm their sophisticated investor status prior to investing.

A spokesperson added: “We paid the adviser initial fees as per the fee agreement between the adviser and their client. We did not take any fees other than our published rate card for core product plus the fee for the module.

“This was an unlisted security requiring additional vetting, but it was treated the same as any standard transfer in/investment purchase. We did not facilitate loans nor did we have any special arrangement with either Elysian or the advisers.

“The decision on how to purchase the shares, whether these were financed or not and whether this finance was repaid or not, was an issue for the client in their personal capacity and their adviser, not the Sipp.”

Robert Graves, head of pensions technical services at Rowanmoor, said that the firm did have some investments in that but couldn’t say how much was invested. “We stopped accepting any Elysian share purchases back in 2012 when they were promoting Elysian 10/11.”

“Our exposure would appear to be quite small. There were too many concerns around it at that time and we said ‘no, we are not going to take it any further’.”

Martin Tilley, director of technical services at Denton’s Pension Management, whose Sipp has no exposure, said that charges can arise where the value of transactions take place between a connected person, such as a member and the pension scheme.

HMRC require that where such a transaction takes place, it must be at an arm’s length commercial value and in most cases evidenced by a professional valuation in writing.

“In the instance of a member selling an asset to the pension scheme at a price that could be deemed to have been incorrect, the tax charge can arise on the release of the pension fund monies to the member in exchange for that asset,” said Mr Tilley.

“In the instance at hand, our understanding is that shares may have been acquired by the member at a discounted price, then sold on the pension at a non discounted level.”

This means there are two things to consider: was this a method of releasing funds to the member by virtue of the differential between discounted and non discounted price; and was this differential justified and available commercially at the time, added Mr Tilley.

In a separate development, it has emerged that Dalriada Trustees - which was appointed trustee of the TWM Pension Trust by the Pension Regulator in 2013 - also has concerns about the trust’s high exposure to Elysian Fuels.

Dalriada Trustees stated: “Since our appointment we have been investigating the investments made by the previous trustees, one of which was in Elysian Fuels No. 27 plc. Approximately £2.7m was paid to this investment which represents a significant proportion of the scheme’s overall investment.

“We are aware from the latest published Elysian accounts that the shares held by the scheme are now valued at zero.

“Dalriada is investigating this latest development and will continue to work on behalf of members to clarify what has caused this devaluation and to establish the likelihood of any recovery of member funds.”

ruth.gillbe@ft.com