For Use By Financial Advisors Only
This note is for general guidance only and is based on our understanding of the current position of the requirements for the acquisition of unlisted shares as it appears in legislation. It does not guarantee that all such cases will be possible, nor that any specific case should or can proceed. Specific advice should be sought in respect of each individual case.
Unlisted Shares Background
Current legislation allows for registered pension schemes to acquire shares in companies. These shares can be unlisted shares, but there are a number of requirements that need to be met before the pension scheme can proceed.
One of the major concerns would be whether the pension scheme would be exposed to possible tax charges as a result of an indirect holding of taxable property, and in ensuring that this is not the case. Additionally, a comprehensive valuation of the shares to be purchased, especially if coming from a connected party, will be required.
Unlisted Shares Summary
- It is possible for pension schemes to acquire unlisted shares in companies, provided the investment itself is prudent.
- To avoid the taxable property issues, the company in which the scheme is investing should ideally fall into the category of a trading concern.
- Where the company is not classified as a trading concern, other routes may be possible for the legitimate holding of taxable property.
- Shares can also be held if the company does not own taxable property over £6,000 and any such property is only used for administration and management.
- In non-trading concern cases, the audit and control regime can be demanding.
Taxable property includes residential property and tangible movable property. Directly or indirectly holding taxable property can lead to tax charges unless an appropriate structure is used.
Definition of Trading Concern
To qualify, the company must:
- Have its main activity as a trade, profession or vocation.
- Not be under the control of the pension scheme alone or with connected persons.
- Not have a controlling director who is a pension scheme member or connected person.
- Not hold property to enable occupation or use by a connected member.
Companies that are not Trading Concerns
Where investment is in a non-trading company (typically connected to a member), it can proceed if:
- Any assets are valued at £6,000 or less.
- The pension scheme holds the assets indirectly.
- Assets are solely for administration or management of the holding company.
- No occupation or use by connected members.
Management and Disposal
The audit and control regime of holding such an asset will be complicated and time consuming, as it will require regular reviews of the status of the company in terms of its financial performance and in relation to the relevant shareholder agreements and documentation.
There may also need to be agreed mechanisms in place to prevent the company acquiring taxable property which could create issues for the pension scheme. The longer term strategy of disposal also needs to be considered, especially when considering drawing benefits. Valuing shareholdings may only be relevant in the context of a sale and individuals may need to consider disposal of the shares as they approach retirement