In Specie Pension Contributions
This is an area which is not often talked about, however it is possible to transfer the ownership of existing investments and property into a Self Invested Personal Pension (SIPP) and have them qualify for tax relief.
The big drawback with this is usually that on the transfer, a capital gain is triggered which could attract a capital gain tax liability.
However with many investment and property prices depressed at the moment, any capital gain is likely to be lower than it was and with with careful planning can be kept within your annual CGT allowance.
Its easiest to demonstrate this by way of an example:
Sally Jones has some shares which are currently worth £15,000. They have fallen in value dramatically over the past 12 months, however Sally is confident that they provide good growth opportunities in the long term and would like to keep hold of them.
If she where to move her shares into her SIPP as an in-specie contribution it would mean the following:
Tax relief
Sally is treated as having made a net pension contribution of the market value of the shares, which is £15,000 at the date of transfer.
1. This all qualifies for basic rate tax relief, so a further £3,750 is credited to Sally's SIPP.
2. As Sally earns £80,000 a year, she will also receive a further £3,750 in higher-rate tax relief via her tax return.
Capital gains tax
Sally only paid £6,000 for her shares.
1. The in-specie transfer of ownership to the SIPP is treated as a sale, so Sally's "gain" of £9,000 is assessable to CGT.
2. Sally has no other gains for this tax year, so as this gain is within her annual CGT allowance of £9,600 she has no CGT liability.
3. Once inside the SIPP, any future gains are completely sheltered from CGT.
Stamp duty
Share purchases are subject to Stamp Duty of 0.5% (rounded-up to the next £5). This means that Sally's SIPP will have to pay Stamp Duty of £80 on receipt of the shares.
Therefore in summary Sally has:
Increased the value of her shares by £3,750Reduced her income tax liability by £3,750
Sheltered any future growth in the value of the shares from capital gains tax.
Whoever said pensions were boring!
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