Traditionally, British tax law is vague about what taxpayers can claim as allowances and reliefs.
The result is after-the-fact challenges from the tax man that can lead to costly legal suits to clarify the law and a system that allows lawyers to exploit loopholes.
Under pension rules, taxpayers cannot hold taxable property as an investment.
HMRC’s registered pensions manual lists examples of banned investments.
What is taxable property?
“Taxable property consists of residential property and most tangible moveable assets,” says the manual. “Residential property can be in the UK or elsewhere and is a building or structure, including associated land that is used or suitable for use as a dwelling.
“Tangible moveable property is things that you can touch and move. It includes assets such as art, antiques, jewellery, fine wine, classic cars and yachts.”
The manual is aimed at giving tax inspectors and agents advice on how HMRC interprets tax law, but is open to challenge in the courts.
Increasingly, investors look at including high-return assets in their pensions.
One recent case involved wind-turbines that earn income by generating electricity sold into the National Grid. These were disallowed as permitted investments as they are bolted to foundations in the ground and can be dismantled and removed.
Adam Wrench, of QROPS and pensions firm London and Colonial, is urging HMRC to make the rules clearer but saying what can go into a pension rather than what is not allowed.
He also revealed his company has their own list and has turned away potential clients because they feel some investments could result in legal problems with HMRC.
“Pension providers have a moral duty to safeguard money investors place with us. The aim is to provide an income in retirement and not to gamble on high returns,” he said.
“HMRC should give the industry more guidance on permitted investments.”
The issue for QROPS and self-invested pension plan (SiPP) providers is they have to sign off investments in their schemes as non-taxable property.
Some of these are clearly unregulated collective investments (UCIS) and unsuitable for many investors, while many fall into a grey area which makes providers uncertain over whether to approve them or not.
Wrench feels a permitted investment list would help providers and investors and remove the doubt over those which are difficult to define.