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HMRC Rules

Whilst a SIPP member could theoretically buy a house or flat within their scheme, HMRC define this type of asset as 'taxable property' and introduced a range of tax penalties which make this unviable.
Direct holding of residential property within a SIPP would usually result in punitive tax charges of up to 70% of the value of the property purchased:
  • 40% unauthorised member payments charge
  • 15% unauthorised payment surcharge payable by the member (where the amount of the unauthorised payment is greater than 25% of the fund)
  • 15% scheme sanction charge (reduced from 40% where the member has had to pay 40% on the unauthorised member payments charge) 
    However, these tax charges do not apply if the SIPP invests in a 'genuinely diverse commercial vehicle' which in turn holds residential property. These vehicles fall into three categories:
    • UK REITs
    • Other kinds of vehicle
    • Trading Concerns
 Full details on the rules regarding this can be found via http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM07109440.htm

The TM Hearthstone fund falls under the 'Other kinds of vehicle' category, and satisfies the following conditions:
  • Each pension scheme must hold 10% or less of the fund
  • The value of the fund must be greater than £1m or hold at least three residential properties directly
  • No single asset which is taxable property (residential property) exceeds 40% of the total assets
  • The fund is not a closed company
  • There is no right for the SIPP member to gain private use of any of the properties
Thus, SIPP members may invest in residential property via the Hearthstone fund without triggering tax penalties.

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Hearthstone Investments PLC is the parent company of the Hearthstone Group. Regulated activities associated with the TM Hearthstone ICVC are carried out by Hearthstone Asset Management Limited, which is an authorised representative of Thesis Asset Management Limited, authorised and regulated by the Financial Conduct Authority (114354). Other companies in the group provide investment advisory and other services funds aimed at professional clients. Details of these companies are provided in the investment materials associated with each fund.

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