Avoidance of riskier, non-mainstream investments is reflected in LV=’s view of the more ‘exotic’ Sipp investments.
Jacqui Thompson, Sipp and strategic partnerships product manager says: “There are several non-standard investments available on the market, but this is not an investment area we support.”
Bricks and mortar
There is a wide range of mainstream investments available to investors who want to make effective use of a Sipp, including deposit accounts with banks and building societies; shares quoted on a recognised UK or overseas stock exchange; and gilts, to name but a few.
However, one of the distinguishing features of a Sipp is that it allows the investor the opportunity to invest in bricks and mortar − one of the more popular reasons for investing in a Sipp.
It allows business owners to buy the premises that they run their business from, such as offices, factories, pubs and shops.
However, property investment into a Sipp is limited to the commercial variety; residential property cannot be included unless it is through a collective investment such as a REIT.
HMRC is strict about the rules and if it decides that an investment has crossed the line, the Sipp investor could find themselves reeling from the shock of a 55 per cent tax bill.
They are worth considering for tax reasons, though, as Mr. Spink says: “Lots of people who invest in Sipps invest in commercial property. It can be very tax-efficient if you’re self-employed and buying your own premises.”
Mr. Lamb agrees “I deal with a lot of farmers and business owners,” says Mr. Lamb: “And commercial property and land are popular Sipp investments with these clients.”
Commercial-property Sipps can also be worthwhile for protecting family wealth, says Ms. Boyle: The pension-freedom rules have made Sipps more attractive to high-net-worth investors looking to use them to transfer wealth down through the generations.
"In these cases, where liquidity is less of a priority, investing in commercial property can work well.”
Investing in commercial property through a Sipp has its disadvantages too, though, to weigh up, as Mr. Spink explains: “While they are good for tax planning, they can be expensive.
"There can be ‘hidden’ costs, too, such as building-maintenance costs and they can be illiquid.”
But, despite the scams, losses, legal cases, misuse and potential downsides, Sipps remain a valid investment vehicle of choice for many investors, including businesspeople and families simply seeking a tax-efficient way to manage their finances and save for their pensions.
As Mr. Churchouse sums it up: “Sipps still have their place and always will, if handled correctly.”