A pension scheme can buy quoted or unquoted shares in a company based either in the UK or overseas.
An occupational pension scheme can buy shares in one or more of the employers participating in the scheme as long as both the following conditions are met:
- the total value of the scheme funds invested is less then 20% of the net value of the pension scheme funds
- the amount invested by the scheme in the shares of any one employer participating in the scheme is less than 5% of net value of the pension scheme funds
Any investment larger than this will be an unauthorised payment and both the scheme employer and scheme administrator will have to pay a tax charge on the amount above the limit.
https://www.gov.uk/pension-trustees-investments-and-tax
So in theory, yes, it is possible, but in reality its likely to fail because:
- An independent ‘Arms Length’ valuation will be required, for an unquoted small business or start up this is extremely difficult as establishing a market value for the shares will be difficult and often a start up will have losses in the first few years
- The HMRC’s rules which govern all registered pension schemes (in particular the sections covering both taxable property and tangible moveable property) dictate that the combined shareholding in the unquoted company held between the pension fund, the member personally and any other connected persons must never exceed 19%, otherwise there would be enormous tax consequences for all concerned
- The company concerned must not (and never should be in the future) controlled by the trustees of the pension fund in conjunction with connected parties
If the business needs the money to buy commercial premises for its trade it would be easier for the pension scheme (SSAS) to lend the money, a SSAS can lend up to 50% of net scheme assets as explained in in this fact sheet from Curtis Banks
If you are over 55, you could also consider drawing down funds from your pension, the first 25% will be tax free.
steve@bicknells.net
