Can a SIPP invest in unquoted shares?

One of the best things about a SIPP is the freedom and flexibility it gives you, but can a SIPP invest in unquoted shares? In this short article we will get to the bottom of what’s permissible and explain some of the decisive factors that will make or break your ability to invest in unquoted shares with your SIPP.

Can a SIPP invest in unquoted shares? It’s possible – but it’s complicated.

The short answer is yes. You won’t be breaking any rules by investing in unquoted shares with your SIPP. However not all SIPP providers allow it. You see, while the legal definitions of a SIPP make it possible to allocate your funds across a wide spectrum of investment types, each SIPP provider is free to choose from this spectrum which types of investments they allow their clients to invest in. For some SIPP providers, unquoted shares represent too much hassle and/or too much risk.

What sort of business are you investing in?

You can make certain inferences about a business based on the fact that its shares are unquoted. Essentially it means the company is a private limited company whose shares are not traded on an official stock exchange.

In order to trade on a stock exchange a business must meet certain criteria in terms of their minimum share capital or the number of years that they have been trading. So, it might be that the company you are looking to invest in is very small or new to the market.

Another reason the shares may be unquoted is simply because the company prefers operating in relative privacy – without the obligation to publicly announce profits, for example.

At this point it’s worth noting that you must not be commercially connected with the company that you are seeking to invest in for your investment to be allowed.

What determines a permissible investment?

There can be lots of question marks around unquoted shares. For that reason your SIPP provider will need to perform some weighty due diligence on the company that you are seeking to invest in. The most obvious place to start is the share value, which will need to be determined by an independent valuation in line with HMRC’s rules for shares and assets valuations.

Another factor to look at is whether your share acquisition will give you an element of control over the company in question. That’s particularly pertinent if your investment is very large or the company is very small. You could end up with a say on how the company operates, which you may or may not want. It needs to be considered carefully.

It may not be tax efficient

Using your SIPP to invest in unquoted shares may result in significant tax charges. For instance, if the company you are investing in owns residential property or more than a certain value of tangible moveable property such as company cars, you could be hit with big charges.

How much can you invest in unquoted shares?

It may feel like there are a lot of hoops to jump through if you want to use your SIPP to invest in unquoted shares. And while it’s true that the due diligence process can be lengthy, it’s important to remember that the process is there to protect your financial welfare. Of course that’s not to say that healthy returns cannot be realised by investing in unquoted shares.

How can Prydis help?

Here at Prydis we have our own SIPP fund that’s built around flexibility, with an open and transparent advisory service that’s all about helping you to make confident decisions for your financial future. Investments in unquoted shares from your SIPP are decided on a case-by-case basis and our expertise in tax, wealth management and retirement planning allows us to give you the big picture on the risk that lies behind your ambitions.

For a free no-obligation initial consultation, just get in touch. We are happy to talk to you either over the phone or in one of our UK offices.