P2P lending in a SIPP

As far as the "FT story" goes, veronicae may have mis-remembered this story which is one of only two hits if you google for news on sippclub:

www.ftadviser.com/2014/06/27/pensions/sipps/sipp-investors-hit-by-hefty-tax-bills-on-business-loans-8s9Rlh5qbBsGicTJSuUJ0I/article.html

There is no suggestion in the story that TC investors have been burnt. However there is a quote from the MD of AJ Bell, which expresses the view that loans used to purchase plant and machinery are a no-no. If this is right, it would certainly be an issue for many p2b loans, including some at TC. I don't know where it comes from, though. I've still not found the right pages on HMRC's website.

Edit: I think I've found it. www.hmrc.gov.uk/manuals/rpsmmanual/RPSM07109020.htm begins:

"Sections 174A, 185A to 185I, 273ZA and Schedule 29A Finance Act 2004 make provision for tax charges [which would be at 55%] where an investment regulated pension scheme holds investments that are taxable property.

Taxable property consists of residential property and most tangible moveable assets. 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 are things that you can touch and move." [emphasis added]

Further edit: The legislation is horrendously complicated, and I am looking at it for the first time, but my reading is that having a loan secured on taxable property is probably not, of itself, an issue. The legislation refers to "an interest in property". I doubt that this would include a mere security interest. And if it doesn't, I would agree with bengilbert that it should not be an issue if the security is exercised and the property sold by a security trustee.

One also needs to consider the provisions regarding indirect interests in property, which would include interests held through companies. The approach taken in the legislation is that these are bad news, and will give rise to a tax charge, unless they fall into a list of exceptions. One of the exceptions (simplifying greatly) is a trading company that you don't control. And I'm pretty sure that the legislators would not have set out to tax secured loans to companies where unsecured loans are OK.

In conclusion, I'm fairly confident that there is not an issue with loans to most ordinary trading companies, secured or unsecured, that you don't control. Even so, I'd be wary of proceeding without professional advice, which is not cost-effective unless you've got very large sums to invest.

Please note;

• ThinCats (TC) has a strong policy on security for loans and a 3.5 year track record during which time 269 loans (£70m) have been made and almost every one has been backed by specific assets. TC is no less keen on security than AC although it is true that there is less bias towards property on TC than AC.
  
• The TC system is set up specifically with SIPPs in mind and has a specific mechanism for ensuring that SIPPs never get to own assets that might cause them to lose tax relief. Over £6m of SIPP funds are currently invested on TC so it is something of a speciality.
  
• I am not aware of any SIPP providers that restrict their customers to only lending on a particular platform. Most of these SIPPs are 'execution only' and most providers will consider allowing investments on any reputable platform that can meet the requirements to qualify for tax relief. If a particular SIPP is only lending on a single platform that is generally because the lender manages it that way.
  

ThinCats (and the other P2PFA members) are not aware of any cases where a SIPP has got into difficulty when making p2p loans through a platform. If such a problem had occurred with a TC loan I would have expected to have been told about it and perhaps asked to help.

Having said that there is no doubt that there will be problems from time to time and we must take great care. HMRC are understandably very concerned to prevent misuse of the SIPP system in lending to a connected business and on platforms such as AC & TC it should be pretty obvious if you are lending to a company you are involved with. Not so with auto lending on Funding Circle because of the limited information provided and the large number of loans so it is important for FC to get HM Treasury and HMRC to change the SIPP rules. Of course the easiest way round the problem would be to use a SSAS instead of a SIPP because of the greater flexibility.

On a different matter it is interesting to see that the P2PFA are seeking to work with HMRC to clarify the position of SIPPs and they are also lobbying for consumer p2p platforms to be allowed to qualify as investments. I attended a meeting between HMRC and the P2PFA today at which this was discussed (alongside the subject of using ISAs and the prospects for offsetting losses against interest income) but I think it will be some time before we see any changes to the rules. One interesting point to note is that if a platform charges you a fee for lending you cannot offset that cost against income for tax purposes. Zopa, Funding Circle, Ratesetter and several others charge lenders a fee and they are lobbying hard to get that changed but the response from HMRC was that they could bypass the problem by not charging lenders a fee!

Kevin Caley (MD of ThinCats)

Hi

I have a SIPP and make company contributions

Can anyone explain an SSAS and the tax benefits to a company and costs?

Thanks!

Hi Anyone who opened these SIPPs, do SS and AB allow you to transfer loans from a personal account directly into your SIPP or do you have to put the loans on the SM through your personal account and buy in the SIPP to transfer?





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