Buying Private Company Shares with Your Pension Fund

Company shares are a permitted investment in pension funds with HMRC but for most of us, this tends to be the fund manager choosing the shares that are trading inside e.g., UK Equity Fund, North American Equity Fund, European Equity Fund etc.

This means your pension fund can legally invest in shares in both public companies listed on a recognised stock exchange and private ‘closed’ limited companies that many business owners have.  There are many things to consider though:

Public Limited Company (Plc) and Insider Dealing

Whilst your pension fund can invest up to 100% in listed company shares, you should be aware that if you are an employee or director and work for the Plc you wish to buy shares in or even if you are an accountant, auditor, tax or legal adviser to the Plc, there may be clauses and restrictions in place to prevent any risk or accusation of insider trading.

We have even had several clients, where it was not them buying shares directly in the Plc with a SIPP or a SSAS but it was just a ‘retail’, consumer available pension fund from a well known pension provider, managed by their own in-house fund manager and we were required to find out whether the pension fund held any shares in specific companies that were clients of our client’s employer.  This is how strict some professional services employers can be with their employees to avoid any accusation of ‘insider trading’.

Private Company Shares and Your SIPP or SSAS

More recently, the government and regulator has been asking fund managers to invest more in UK private company equity to boost the UK economy.  This is legal as you now know.

What if you self direct/have control of how your pension fund invests via a Self Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS) and want to invest in private company shares and even your own limited company’s shares?

Before April 2006, your SSAS or SIPP could invest up to 25% of the fund in private company including your own company.  This has now changed:

Occupation Pension Scheme Rules for SSAS

• The maximum that can be invested in any one private company, including your own is 5% of the pension fund value.
• If the private company has subsidiaries, the maximum that can be invested is 20% of the fund value overall but with no more than 5% of fund value per company.
• Your SSAS could invest in 4 private companies at 5% each, total 20% overall or it could invest in a much wider range e.g.  40 private companies and no more than 0.5% of the SSAS fund value, total 20%.

Private Pension Scheme Rules for SIPP

• SIPPs must invest in a true trading business and not any business that is technically just an investment limited company (i.e., no trade, just investing).
• SIPPS can invest up to 100% of the fund value in private company shares including your own company (if a shareholding director) or your employer’s company shares if you are an employee.
• The company that your SIPP invests in cannot itself hold assets of more than £6,000 in value that you could personally benefit from such as residential property (e.g., a holiday property) or even company cars.
• If you are a controlling director of a company – this means you have direct or indirect control or significant influence over 20% or more of the company’s shares then you revert to the 5% and 20% maximums investment holdings by your SIPP in the same way that a SSAS does above.
• If you are not a controlling director, you can invest 100% of your SIPP funds in the company.  Even if the company was valued at £1m, if you had £100,000 in your SIPP, you could buy 10% of the company i.e., £100,000 of shares.
• The difficulty is how do you value a private company’s value and therefore, the share price?
• We suggest you need to get a professional valuer to value the company and therefore, the share value.

Related:

Directors Pensions  Pension Fund Loans

Other useful links:

Contact  Book Appt  Calculators  Our Fees