Frequently asked questions
Investing through your pension
Can I invest through my pension?
Yes, in most cases. Lending for residential investment is not allowed under HMRC rules although loans for residential development and any commercial property are permitted. Care should be taken to sell your participation in a residential development loan should the borrower decide to roll the loan into an investment in the absence of selling the completed property.
Crowdfunding is classed as a non-standard asset by the FCA for Self Invested Personal Pensions (SIPPs) purposes. You are likely, therefore, to encounter resistance from most SIPP providers.
If your pension fund is a Small Self Administered Scheme ("SSAS") we have relationships with pension providers who have pre-approved CapitalStackers as a qualifying asset class.
What conditions are imposed by HMRC?
We do not provide investment or taxation advice and you should refer to your IFA or tax adviser as necessary. That said, we do know that you risk incurring a significant tax charge in the event your pension is used to fund any of the following:
Loans to individuals. You should only lend to trading businesses, not individuals. Although lending to individuals on the CapitalStackers platform is rare, such deals are hidden from pension lenders.
Loans to a connected party. Generally, this would be a family member or a business colleague. Essentially, any loans you make should only be to third party borrowers wholly unconnected to you or your business.
Loans for the purpose of residential investment. These are not permitted by HMRC. However, you are permitted to lend on residential developments. You need to be aware there is a possibility that a residential development might be deemed by HMRC to have become a residential investment property if it could be used as a dwelling. The rules were written before the advent of crowdfunding and in that regard lack much needed clarity which is being sought by crowdfunding platforms. In the meantime, you should take care to monitor your residential development loans and seek to exit your participation prior to the point at which the security could be deemed to be a dwelling. In this regard, the following HMRC guidance is relevant:
“The definition of residential property is a building or structure that is used or suitable for use as a dwelling. It does not therefore apply to property, including land, which is not residential property when the investment-regulated pension scheme acquires it. But the building or structure may become residential property whilst owned by the pension scheme as a result of being subsequently subject to development.
Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling. Land and buildings being converted are treated as residential property from the point when they become suitable for use as a dwelling. In any specific case this point should be determined by taking a common sense approach to the facts and circumstances.
Essentially the question to be answered is: would a person normally live in that dwelling? The point at which this occurs will normally be when the works are substantially completed. In the case of UK property this is likely to be when the certificate of habitation is issued. A property that is sold before the development or conversion is substantially completed never becomes residential property.”
Each type of loan is categorised separately and residential investment loans are and hidden from pension lenders.
When setting up your account with us you will be asked to confirm that you understand the implications of lending to these types of borrower.
