Notes for Guidance on Pension Scheme Investment in Unquoted Shares

Notes for Guidance on Pension Scheme Investment in Unquoted Shares (For James Hay Modular isipp, Partnership SIPP, IPS Partnership SIPP, IPS (2008) SIPP, IPS Pension Builder, Family SIPP and SSAS only)

subject to various restrictions. subject to various restrictions. The type of pension vehicle that can be used for this purpose is self-administered scheme. The type There of pension NOTES have vehicle FOR traditionally that GUIDANCE can been be two used ON types, for PENSION this purpose SCHEME Self Invested is Personal self-administered Pension (SIPP) scheme. for There individuals, have traditionally and been Small two types, Self-Administered Invested Scheme Personal (SSAS) Pension for companies. (SIPP) for From individuals, April INVESTMENT 2006 and rules IN Small surrounding UNQUOTED Self-Administered permissible SHARES Scheme investments (SSAS) of SSAS for and companies. SIPP are From broadly April 2006 same rules (apart surrounding from one exception) permissible effectively investments creating of SSAS one The type and pension SIPP of arrangement are regulations broadly known introduced same as (apart Investment on from 6 th one April Regulated exception) 2006 permit Pension effectively pension Schemes, creating schemes one or to purchase Member type of arrangement Directed unquoted Pension shares known Schemes. both as in Investment UK and overseas Regulated companies, Pension although Schemes, this or is subject Member to Directed various restrictions. Pension Schemes. The aim of se notes is to assist Pension Scheme Trustees in buying unquoted The shares, type aim of and se pension notes to ensure vehicle is to that that assist any can Pension problems be used Scheme are for avoided. this Trustees purpose These is and Members investments self-administered buying The aim of se notes is to assist Pension Scheme Trustees buying unquoted are not scheme. unquoted straightforward There shares, have and and it traditionally to ensure that is advisable been any to discuss two problems types, plans are with Self avoided. Invested These us before Personal investments proceeding Pension are shares, and to ensure that any problems are avoided. These investments are and not (SIPP) not straightforward seek advice from individuals, and it is suitably and advisable qualified Small to discuss independent Self-Administered plans with us before financial adviser. Scheme proceeding (SSAS) and straightforward and is advisable to discuss plans with us before proceeding and for companies. seek seek advice advice From from from a April suitably suitably 2006 qualified qualified rules Financial independent surrounding Adviser. financial permissible adviser. investments of SSAS and SIPP are broadly same (apart from one exception) effectively creating one type GENERAL of arrangement PRINCIPLES known as Investment Regulated Pension Schemes, or Member GENERAL Directed PRINCIPLES Pension Schemes. An unlisted/unquoted company means a company which is not officially listed on a The recognised An unlisted/unquoted aim of stock se exchange notes company is to within assist means Pension meaning a company Scheme of Section which Trustees 841 is not ICTA in officially buying 1988. listed unquoted on a shares, recognised and stock ensure exchange that within any problems meaning are avoided. of of Section section These 841005(3) ICTA investments 1988. Income are Tax not Act straightforward It 2007 is important (previously to and section be it able is 841 advisable to Income demonstrate to and discuss Corporation that plans sole with Tax Act us purpose before 1988). of proceeding establishing and a seek pension It is advice important scheme from to a is be suitably not able to qualified buy to demonstrate unquoted independent shares, that financial as sole this adviser. purpose could be of deemed establishing as tax a avoidance It pension is important scheme under to be is able not Income to to demonstrate buy & Corporation unquoted that shares, Taxes sole Act as purpose 1988 this could (s of 707) establishing be or deemed regime a pension as tax for disclosure scheme avoidance not of under tax to buy avoidance unquoted Income schemes & shares, Corporation in as this Taxes Finance could Act be Act deemed 1988 2004 (s(part 707) as tax 7). or avoidance. This regime is easier This for GENERAL to disclosure easier demonstrate to of PRINCIPLES demonstrate tax if avoidance (a) if (a) schemes scheme is in set up is Finance some set up time Act some 2004 before time (Part before 7). purchase This purchase is easier takes place takes to demonstrate and place (b) and (b) if balance (a) balance of scheme of assets is assets set are up invested are some invested time or before in asset or classes. asset purchase classes. takes An place unlisted/unquoted and (b) balance company of means assets are a company invested which in or is asset not officially classes. listed on a recognised If re any If re any stock doubt, doubt, exchange prior clearance prior clearance within meaning can be sought can be sought of Section from from 841 Her Her ICTA Majesty s Majesty s 1988. Revenue & Customs (HMRC). This is a process that you would need to follow prior to approaching Revenue Customs If re is (HMRC). any doubt, This prior is a clearance process that can you be sought would need from to Her do Majesty s prior to approaching Revenue & It us is to important arrange arrange to investment. Customs (HMRC). investment. be This able is a to process demonstrate that you that would sole need purpose to do prior of to establishing approaching a pension us to arrange scheme is investment. not to buy unquoted shares, as this could be deemed as tax avoidance There are under a number Income of circumstances & Corporation whereby Taxes Act purchase 1988 (s 707) of unquoted or regime shares for disclosure could There involve are of a tax number avoidance pension of circumstances scheme schemes member(s) in whereby Finance or sponsoring Act purchase 2004 employer (Part of unquoted 7). This and is pension shares easier to fund could demonstrate in involve substantial if pension (a) tax charges. scheme The is member(s) first set up step some or is refore sponsoring time before to employer establish purchase and wher pension takes place proposed fund in and substantial share (b) purchase balance tax charges. of is allowable assets The first as are a step invested pension is refore scheme in or asset investment, to establish classes. or wher it will proposed incur tax share charges purchase effectively is allowable rendering as a it pension forbidden. scheme This is investment, a complex area. or wher it If will re incur is tax any charges doubt, effectively prior clearance rendering can it be forbidden. sought from This Her is a Majesty s complex area. Revenue & Customs (HMRC). This is a process that you would need to do prior to approaching us TAXABLE to arrange PROPERTY investment. AND THE PRINCIPLE OF INDIRECT INVESTMENT TAXABLE PROPERTY AND THE PRINCIPLE OF INDIRECT INVESTMENT There Taxable are property a number consists of circumstances of residential whereby property and purchase tangible tangible of moveable unquoted property property shares could (e.g. Taxable art, involve property antiques, pension consists stamps, scheme of fine residential wine, member(s) jewellery, property or cars, sponsoring and office tangible equipment employer moveable etc). and property pension Indirect fund investment substantial in taxable tax property charges. via The unquoted first step shares is refore of a company to establish that holds wher taxable proposed property is share included purchase in is definition. allowable as a pension scheme investment, or wher it will incur tax charges effectively rendering it forbidden. This is a complex area. Apart from some specific exceptions, UK Pension Schemes are not permitted to invest in taxable property (directly or indirectly) without paying substantial tax charges. TAXABLE PROPERTY AND THE PRINCIPLE OF INDIRECT INVESTMENT Taxable property consists of residential property and tangible moveable property

property is included in definition. Apart from some specific exceptions, UK Pension Schemes are not permitted to invest in taxable property (directly or indirectly) without paying substantial tax charges. Examples of an indirect interest in taxable property are: 1. A pension scheme holds 100% of share capital of a company which itself owns a residential property. The pension scheme refore indirectly holds a 100% interest in residential property. 2. A pension scheme holds 100% of shares in company A and company A holds 50% of shares in company B which owns an art collection. The pension scheme indirectly holds an interest in company B of 50% (i.e. 100% x 50%) and refore a 50% interest in art collection. 3. A pension scheme holds 20% of shares in company A, which holds 50% of shares in company B that holds 40% of shares in company C that owns residential property. The pension scheme holds an indirect interest in company B, of 10% (i.e. 20% x 50%), and company C, of 4% (i.e. 20% x 50% x 40%), and refore indirectly holds a 4% interest in residential property. The extent of a pension scheme s interest in a company (and reby its taxable property) is determined by whichever of following gives pension scheme greatest interest in company: percentage of share capital or issued share capital of company owned by pension scheme, percentage of voting rights in company owned by pension scheme, percentage of all income of company to which pension scheme has a right, percentage of amounts distributed on a distribution in relation to company to which pension scheme has a right, percentage of of assets of of company to which to which pension pension scheme scheme has a has right a right on winding on a winding up or in up any or in or any circumstances, or circumstances, where a pension scheme has a right to a percentage of a particular asset of company, or of income or gains derived from such an asset, that percentage. IF A COMPANY HAS ABSOLUTELY NO TAXABLE PROPERTY, FOR EXAMPLE AN INVESTMENT COMPANY WHICH MERELY HOLDS COMMERCIAL PROPERTY, THEN THE PENSION SCHEME CAN OWN UP TO 100% OF ITS SHARES

PURCHASE OF SHARES IN SPONSORING COMPANIES OF AN OCCUPATIONAL SCHEME (SSAS) There are limits on total value of shareholdings in its sponsoring employer(s) that an occupational scheme can purchase. The market value of shares at purchase must be less than: 5% of market value of scheme's assets in any one sponsoring employer. 20% of market value of scheme assets where shareholdings relate to more than one sponsoring employer. These shareholding limits only apply to schemes that are classed as occupational pension schemes as defined in Finance Act 2004. This means that a SIPP could be 100% invested in shares of member's employer on basis that SIPP was not defined as an occupational scheme and that specific circumstances of member did not deem investment to be classed as taxable property e.g. if member was a controlling director of company. INVESTMENT IN TAXABLE PROPERTY VIA UNQUOTED SHARES WHICH INCURS NO TAX CHARGES Indirect investments held held through through certain certain kinds kinds of commercial of commercial vehicle vehicle will not will be not subject be subject to tax charges to tax when charges held as when a scheme held as investment a scheme by an investment investment by regulated an investment pension regulated scheme. These pension are called scheme. Genuinely These Diverse are called Commercial Genuinely Vehicles Diverse of which Commercial re are Vehicles three types: of which re are three types: 1. Trading Concerns concerns These are arm's length trading vehicles. There are four conditions to be met: 1. The vehicle s main activity is carrying on of a trade, profession or vocation (i.e. it is not an investment company). 2. The pension scheme eir alone or toger with associated persons does not have control of vehicle. 3. Neir a pension scheme member nor a person connected to such a member is a controlling director of vehicle (i.e. owns or controls 20% or more of share capital) or any or vehicle which holds an interest in vehicle directly or indirectly. 4. The pension scheme does not directly or indirectly hold an interest in vehicle for purposes of enabling a pension scheme member or a connected person of such a member to occupy or use residential or tangible moveable property. 2. Or Kinds kinds Of of vehicle Vehicle These are often established as as Unit Trusts, Open Ended Investment Companies or or or pooled arrangements. If If a vehicle vehicle meets meets certain certain conditions, conditions, where where pension pension scheme scheme, and associates and associates, directly or directly indirectly or indirectly own 10% own or 10% less and or less re and is re no right is no to have right to private have use private of any use taxable of any property, taxable property y will y not be will subject not be subject to a tax to charge. a tax charge.

The pension scheme toger with any connected person (see (see below for for a definition a of connected of parties parties but note but note this includes this includes or members or members of same of pension same pension scheme e.g. scheme a SSAS e.g. a but SSAS not a but SIPP) not a must SIPP) not must hold not directly hold directly or indirectly or indirectly 10% or 10% more of more share of capital share or capital issued or share issued capital share of capital vehicle, of or vehicle, 10% or more 10% of or more voting of rights voting vehicle, rights in or a right vehicle, to receive or a right 10% to or receive more 10% of or income more of income vehicle, of or an interest vehicle, in or an vehicle interest giving in rise vehicle to income giving and rise gains to income derived and from gains a specific derived property from a of specific more property than 10%. of more than 10%. The The vehicle vehicle must must meet meet three three conditions: conditions. Condition 1 The total value of assets held directly by vehicle is at least 1 million, or The vehicle holds at least three assets directly which are residential property, none of which has a value which exceeds 40% of total value of assets. Condition 2 If vehicle is a company it is not a close company (i.e. controlled by five or fewer parties), or equivalent in its country of residence. Condition 3 The vehicle does not have as its main purpose, or one of its main purposes, direct or indirect holding of an animal(s) used for sporting purposes. This is to recognise that many racehorse syndicates have many members and provide m with certain benefits related to horse ownership such as attendance at race meetings as an owner with access to owner's enclosure. The pension scheme s interest in vehicle must meet following conditions: 1. There is no right to private use of any taxable property owned by vehicle. 2. The pension scheme must not directly or indirectly hold an interest in vehicle for purposes of enabling a member of pension scheme or a connected person to occupy or use residential property or tangible moveable property. 3. These limits apply to indirect holdings of a vehicle as well. So if a pension scheme holds 50% of company A which in turn owns 15% of company B n pension scheme s interest in company B will be 7.5%. The indirect holding in company B will refore be less than 10%.

3. UK REITs REITS 3. UK REITS UK REITS REITs are companies to which Part 4 of Finance Act 2006 (UK Real Estate UK Investment REITS Trusts) are companies applies or to or a which member a member Part of a 4 of group of a Finance group to which to Act that which 2006 part that (UK applies. part Real applies. Estate Investment Trusts) applies or a member of a group to which that part applies. The pension scheme's interest in UK REIT must meet following conditions. The pension scheme's interest in UK REIT must meet following conditions. The pension scheme The pension scheme Must not directly or indirectly hold an interest in UK REIT for purposes of Must enabling not directly a member or indirectly of hold pension an interest scheme in or UK a connected REIT for person purposes of a member of enabling to occupy a member or use of property, pension and scheme or a connected person of a The member pension to occupy scheme or use toger property, with any and connected person must not hold directly The pension or indirectly scheme 10% toger or more with of any share connected capital or person issued share must capital not hold of directly UK REIT, or indirectly or 10% 10% or more more of of voting share rights capital in or issued UK REIT, share or capital a right of to receive UK REIT, 10% or or more 10% or of more income of of voting UK rights REIT, in or UK an REIT, interest or in a right UK to REIT receive giving 10% rise or more to income of and income gains of derived UK from REIT, a specific or an interest property in of more UK than REIT 10%. giving rise to income and gains derived from a specific property of more than 10%. Low value holding of taxable property Low Value Holding Of Taxable Property Where Low Value company Holding Of concerned Taxable Property is not classed as a genuinely diverse commercial vehicle Where (for example company if concerned pension is scheme not classed member as a and/or genuinely connected diverse persons commercial owns or Where vehicle controls (for 20% example company or more if concerned of pension company), is scheme not classed and member low as value a and/or genuinely taxable connected diverse property persons commercial is owned owns by vehicle or controls a company (for 20% example for or use more if in of pension normal company), scheme operation and member of low its business, value and/or taxable connected this is property only persons exempt is owned owns from being or by controls a company treated 20% as for or taxable use more in property of normal company), in operation following and of low its circumstances: business, value taxable this is property only exempt is owned from by being treated as taxable property in following circumstances: 1. a company Its market for value use is in less normal than 6,000. operation of its business, this is only exempt from being treated as taxable property in following circumstances: 2. 1. It Its is held market for value purpose is less of than management 6,000 or administration of company. 1. 2. Its is market held for value purpose is less than of management 6,000 or administration of company 3. 2. 3. No It No is direct held direct ownership for purpose is permitted is of permitted management by by pension or administration pension fund only fund indirect of only company via indirect purchase via 3. of No purchase shares. direct of ownership shares is permitted by pension fund only indirect via 4. No member or connected person uses (or has a right to use) asset 4. No purchase member of or shares connected person uses (or has a right to use) asset. 4. No member or connected person uses (or has a right to use) asset The fourth point usually means that controlling directors and those who have a direct The fourth or indirect point usually control means of 20% that or controlling more of directors company and those cannot who purchase have a shares direct or with indirect ir control pension of scheme 20% or because more of y company have cannot right to purchase use equipment shares with (telephones, ir pension computers, scheme etc) because of company. y have right to use equipment (telephones, computers, etc) of company. VALUE SHIFTING VALUE SHIFTING It is possible to pass value from a pension scheme without making any payment. For It example, is possible an to individual pass value is a from member a pension of a pension scheme without scheme making which owns any payment. 10% of For example; class example, A shares an individual a company, is is a a member while of a of individual pension a pension scheme personally scheme which owns which owns 10% owns 10% of 10% of class of class B A shares. class shares A shares in a company, in a company, while while individual individual personally personally owns 10% owns of 10% class of B class shares. B shares. Originally both class A A and and class class B shares B shares have have similar similar rights, rights, but if but class if A class shares A n shares Originally change n both change ir class rights ir A so and rights y class no so longer B y shares no carry longer have carry right similar to rights, dividends, but to dividends, n if value class n has A been value shares passed has n been change to passed class ir to B rights shares, class so and y B refore shares, no longer and to carry refore member right to without to member dividends, any payment. without n Such any value payment. shifting has been of Such value passed shifting is taxable. to of value class is B taxable. shares, and refore to member without any payment. Such shifting of value is taxable.

WHEN DOES A TAX CHARGE APPLY TO AN INDIRECT HOLDING OF TAXABLE PROPERTY? WHEN DOES A TAX CHARGE APPLY TO AN INDIRECT HOLDING OF TAXABLE PROPERTY? Where a pension scheme invests in shares of an unquoted company which holds taxable property, and company is not classified under one of exemptions Where explained a pension above, scheme n it is invests treated in as shares making of an an unquoted Unauthorised company Payment. which holds The taxable specific circumstances property and where company unauthorised not classified payment under occurs one are of following: exemptions explained above, n it is treated as making an Unauthorised Payment. The specific circumstances acquiring where taxable an unauthorised property indirectly payment occurs are following: increasing interest in an indirect holding improvement acquiring taxable of taxable property property indirectly, held indirectly to increase its value increasing vehicle interest increases an its indirect holding holding, of taxable property conversion improvement of of non-taxable property held into indirectly taxable to property increase its value, value vehicle shifting increases its holding of taxable property, conversion of non-taxable property into taxable property, In each of se instances, purchase/conversion cost (or open market value if greater), value or increased/decreased shifting. value of taxable property will be amount In subject each to of a se tax charge. instances, purchase/conversion cost (or open market value if greater), or increased/decreased value of taxable property, will be amount subject to a tax charge. THE TAX CHARGES THAT WILL APPLY THE In TAX circumstances CHARGES THAT outlined WILL above APPLY where an unauthorised payment is deemed to have occurred, consequent tax charges (and possible allowances) are as follows: In circumstances outlined above, where an unauthorised payment is deemed to have Acquisition occurred, consequent tax charges (and possible allowances) are as follows: Acquisition The amount spent on acquiring an indirect interest in taxable property is subject to an Unauthorised Payment Charge of 40% on pension scheme member and a The Scheme amount Sanction spent Charge on acquiring of 15% an indirect on scheme interest Administrator in taxable property a total is subject charge of to an 55%. Unauthorised Payment Charge of 40% on pension scheme member and a Scheme Sanction Charge of 15% on scheme Administrator a total charge of 55%. If more than 25% of pension fund value is spent on investment, a furr Unauthorised Payment Surcharge of of 15% 15% is is levied levied on on member, member, taking taking total total tax charge tax charge to 70%. to 70%. If If amount amount spent spent on acquiring on acquiring investment investment is not is not market market value, value, market value market must value be used must for be this used purpose. for this Some purpose. examples Some are examples as follows: are as follows: The pension scheme owns 50% of a company and that company acquires a The residential pension property scheme for owns 100,000. 50% The of a unauthorised company and payment that company will be acquires 50,000. a residential The pension property scheme for holds 100,000. 100% The of unauthorised company A which payment in turn will holds be 50,000. 50% of The company pension B. Company scheme holds B acquires 100% of a company residential A property which in for turn 100,000. holds 50% The of company unauthorised B. Company payment will B be acquires 50,000. a residential property for 100,000. The unauthorised payment will be 50,000 The pension scheme holds 50% of company A which in turn holds 50% of The pension scheme holds 50% of company which in turn holds 50% of company company B. B. Company Company B acquires acquires a residential residential property property for for 100,000. 100,000. The The unauthorised unauthorised payment payment will will be be 25,000 25,000. Annual Tax Charge An annual Scheme Sanction Charge of 40% of income derived from investment is also payable by pension scheme Administrator for as long as it continues to be held by pension scheme. If income is less than 10% p.a. it is

deemed as being 10% (increased by RPI each year). An example is as follows: A pension scheme holds 50% of company A which holds 50% of company B. Company B holds a residential property for entire tax year. The income is 10,000. The pension scheme is chargeable to a scheme sanction charge on 2,500 (i.e. 10,000 x 50% x 50%). In above example, if Company B pays tax of 2,000 on income, a credit for tax paid of 500 is allowed to be set against tax due on scheme sanction charge (i.e. 2,000 x 50% x 50%). Disposal A 40% Capital Gains Scheme Sanction Charge is payable by pension scheme Administrator on disposal of asset. A pension scheme holds 100% of a company and company owns a residential property. The unauthorised payment charged on pension scheme in relation to acquisition of asset was 100,000. The pension scheme disposes of 50% of its shares in company when market value of asset is 200,000. The cost of of asset for for purposes of of capital capital gains gains computation computation is taken is to taken be 50% to be of 50% unauthorised of unauthorised payment i.e. payment 50,000. - i.e. The 50,000. sale proceeds The sale are deemed proceeds to are be 50% deemed of to market be 50% value of of market property value i.e. 100,000. of property The taxable i.e. gain 100,000. is refore The taxable 50,000. gain is refore 50,000. If company subsequently disposes disposes of its of holding its holding property in for property 250,000, for 250,000. amount The of unauthorised amount of unauthorised payment charged payment in charged relation to in relation asset to was 100,000. asset was However, 100,000. 50,000 However was 50,000 used in was previous used in capital previous gain and capital refore gain only and refore 50,000 is only available 50,000 to is set available against this to set gain. against this gain. When company disposes of property, pension scheme held 50% of that company. Therefore consideration for for disposal disposal deemed is deemed to be to 50% be of 50% of actual actual sale proceeds. sale proceeds. The capital gain is refore based on deemed sale proceeds of 125,000 and costs of 50,000, giving a taxable gain of 75,000. If any tax tax is is paid paid on on disposal disposal of of property property by by company, company, this is allowed this is to allowed be offset to be against offset any against tax charged any tax charged on capital on gain capital as a gain scheme as a sanction scheme charge. sanction The charge. amount The allowed amount to allowed be offset to be is offset proportion is proportion of tax of paid that tax relates paid that to relates pension to scheme s pension holding scheme s in holding company. in Therefore company. if Therefore pension if scheme pension holds scheme 50% of holds vehicle, 50% of 50% vehicle, of tax 50% is allowed of tax as a is deduction. allowed as a deduction. In addition, if unauthorised payment in any scheme year exceeds 25% of total fund value, HM Revenue & Customs has discretion to withdraw scheme s tax exempt status, which incurs furr tax charges. Clearly, se tax charges are very high, and make pension scheme investment in taxable property completely unfeasible. It must also be stressed that it is responsibility of pension scheme member(s) to inform us of any occurrences which involve an unauthorised payment, so this can be reported to HM Revenue & Customs in quarterly Accounting Accounting For Tax Tax return, and appropriate tax paid. Failure to make a report in quarterly return will incur a fine from Revenue on pension scheme of up up to to 3,000. Neir Neir James IPS Hay nor Partnership scheme nor Trustees scheme are liable Trustees for are liable for se penalties, and y are refore payable from pension fund.

se penalties, and y are refore payable from pension fund. Scheme Scheme sanction sanction charges charges levied levied on on scheme scheme Administrator Administrator must must be paid be from paid from pension pension fund. fund. Neir Neir James IPS Hay nor Partnership Trustees nor are liable. Trustees IPS will are assess liable. James an unquoted Hay Partnership investment will prior assess to transaction an unquoted and investment it is responsibility prior to transaction of and pension it is scheme responsibility member(s) of to pension inform scheme IPS of any member(s) changes to in inform circumstances James Hay Partnership that could result of any in changes investment in circumstances being classed that as could taxable result property. in investment being classed as taxable property. CIRCUMSTANCES WHERE AN INCREASE IN THE VALUE OF INDIRECTLY HELD TAXABLE PROPERTY DOES NOT INCUR A TAX CHARGE If value of a pension scheme s indirect holding of taxable property increases without pension scheme purchasing furr shares in company, this is not deemed as an unauthorised payment or taken into account for purposes of 10% test for genuine commercial vehicles (see above) unless it is part of a scheme or arrangement to enable a lower unauthorised payment to be charged. For example, if a scheme owns 8% of shareholding in a company, and this is increased to 15% because ors decrease ir holdings, this increase will not be taken into account unless it is done as a deliberate device to avoid unauthorised payments charge. BUYING THE SHARES When purchasing shares, certain requirements must be fulfilled: 1. If shares are being purchased from or issued by a connected party (see below for a definition of connected parties), a professional valuation of shares to be acquired by pension scheme must be provided before purchase proceeds. The valuation can be supplied by company s auditor or or suitably qualified person, and must be given in writing. 2. In addition, The Pensions Act 1995 lays down certain requirements for occupational pension schemes (i.e. SSASs) that Trustees must fulfil when making investments. It is It our is understanding our that that Trustees Trustees of se schemes of se who schemes wish who to invest wish in to invest shares in of shares an unquoted of an unquoted company company must take must suitable take professional suitable professional advice before advice doing before so. Therefore, doing so. Therefore, in addition to in addition requirement to to requirement obtain a professional to obtain a professional valuation, we valuation, will require we a will letter require from a letter company s from accountant/auditor, company's accountant/auditor, confirming that confirming in ir that opinion ir investment opinion is investment a suitable one is a for suitable Trustees one for that will Trustees not compromise that will not compromise Trustees primary Trustees' duty of safeguarding primary duty of scheme safeguarding funds. scheme funds. 3. The shares must be registered in individual names of pension scheme trustees with an account designation of pension scheme s name. 4. It is a requirement that you provide us with a copy of share certificate for our records.

PAYMENT OF DIVIDENDS If shares do do not not yield yield an an income, income, or increase or increase value, in value, Revenue Revenue may regard may regard m as m an as unsuitable an unsuitable investment investment for for pension pension scheme. scheme. The company The company should refore should pay refore dividends. pay dividends. This can cause This problems, can cause especially problems, if re especially are external if re shareholders external who shareholders have not who been have paid not dividends been paid in dividends past. in past. When company declares a dividend, it must pay its shareholders. To pay dividend When company declares a dividend, it must pay its shareholders. To pay to dividend pension to scheme, pension scheme, company should company draw should a cheque draw for a cheque net amount for of net dividend amount of (i.e. less dividend 10% advanced (i.e. less 10% Corporation advanced Tax), Corporation made payable Tax), to made trustees payable to of pension trustees scheme, of and pension send scheme, this to us. and The send tax cannot this to be us. reclaimed The tax by cannot pension be scheme. reclaimed by pension scheme. VALUING THE SHARES VALUING THE SHARES It will be necessary from time to time to provide us with an up to date valuation of shares. It will be This necessary is particularly from time important to time at to provide point of us commencing with an up to or date reviewing valuation retirement of benefits. shares. This It refore is particularly essential important that you at provide point us with of commencing a professional or valuation reviewing as and retirement when required. benefits. It is refore essential that you provide us with a professional valuation as and when required. SELLING THE SHARES Eventually, SELLING THE SHARES shares will be sold at market value to provide retirement or death benefits. However, if re is sufficient income in fund from or investments to provide Eventually, benefits, shares shares will be could sold be at retained market in value fund to provide for retirement next generation. or death If benefits. shares However, are sold if to re a connected is sufficient party, income a professional in fund valuation from or must investments be provided to beforehand provide benefits, as evidence shares that could sale be price retained is in open fund market for value. next "generation". If shares are sold to a connected party, a professional valuation must be provided TRANSITIONAL beforehand as evidence PROTECTION that sale price is open market value. Where, on A-Day (6th April 2006), a SSAS already held shares above simplified regime TRANSITIONAL limits, it will PROTECTION not be required to reduce holding to comply with new rules. Any subsequent purchase or enhancement in value automatically means whole shareholding Where, on A-Day must (6 comply th April with 2006), A a Day SSAS regulations. already held shares above simplified regime limits, it will not be required to reduce holding to comply with new rules. Any subsequent purchase or enhancement in value automatically means whole CONNECTED PARTIES shareholding must comply with A Day regulations. HM Revenue & Customs have a broad definition of a connected party as set out in Section 839 of Income and Corporation Taxes Act 1988. This basically involves following: CONNECTED PARTIES HM Revenue && Customs Customs have have a broad a broad definition definition of a connected of a connected party as party set out as set in Section out in 839 Section of 839 Income of and 1988 Corporation Taxes Act. Taxes This Act basically 1988. This involves basically following: involves following: A wife, husband or relative A wife or husband of a relative A trustee is connected with a settlor A business partner, wife, husband or relative of a business partner One company controlling anor, or two companies being controlled by same person (eir with or without or connected persons) Any or member of pension scheme

Any or person connected with such a member Any or pension scheme of which a member or connected person is also a member Any associated pension scheme. Any or person connected with such a member Any or pension scheme of which a member or connected person is also a member FEES Any associated pension scheme. The standard fee for work involved with each investment in unquoted shares is 250 (plus VAT where applicable). However, if our guidelines are not followed, this usually FEES results in additional administration. We reserve right to charge an extra fee, on an hourly basis, in respect of any additional work. The standard fee for work involved with each investment in unquoted shares is It 250 For may those (plus be that who VAT we wish where need to proceed applicable). to instruct with an However, an external investment if solicitor our in guidelines unquoted to review are shares, documentation. not followed, first step The this solicitor usually is complete results will charge in and additional a fee return for administration. this and Questionnaire this will We be toger paid reserve by your with right pension appropriate to charge scheme. an furr We extra will require fee, documentation on your an hourly agreement detailed basis, in to in this respect solicitor s document. of any costs additional before work. proceeding. For those who wish to proceed with an investment in unquoted shares, first step is to complete and return Questionnaire toger with appropriate furr These guidelines are based on our understanding of current law and HM Revenue & Customs documentation detailed in this document. practice, which are subject to alteration. These guidelines are based on our understanding of current law and HM Revenue & Customs practice, which are subject to alteration. James Hay Partnership is able to provide literature in alternative formats. The formats available are: Large Print (as recommended by RNIB), Braille, Audio Tape and PC Disk. If you would like to receive this document in an alternative format please contact us on 0845 850 4455. For hard of hearing and / or speech impaired, please use Typetalk service via 18001 0845 850 4455. James Hay Partnership is trading name of James Hay Insurance Company Limited (JHIC) (registered in Jersey number 77318); IPS Pensions Limited (IPS) (registered in England number 2601833); James Hay Administration Company Limited (JHAC) (registered in England number 4068398); James Hay Pension Trustees Limited (JHPT) (registered in England number 1435887); James Hay Wrap Managers Limited (JHWM) (registered in England number 4773695); James Hay Wrap Nominee Company Limited (JHWNC) (registered in England number 7259308); PAL Trustees Limited (PAL) (registered in England number 1666419); Santhouse Pensioneer Trustee Company Limited (SPTCL) (registered in England number 1670940); Sarum Trustees Limited (SarumTL) (registered in England number 1003681); Sealgrove Trustees Limited (STL) (registered in England number 1444964); The IPS Partnership Plc (IPS Plc) (registered in England number 1458445); Union Pension Trustees Limited (UPT) (registered in England number 2634371) and Union Pensions Trustees (London) Limited (UPTL) (registered in England number 1739546). JHIC has its registered office at 3rd Floor, 37 Esplanade, St Helier, Jersey, JE2 3QA. IPS, JHAC, JHPT, JHWM, JHWNC, SPTCL, SarumTL and IPS Plc have ir registered office at Trinity House, Buckingway Business Park, Anderson Road, Swavesey, Cambs CB24 4UQ. PAL, STL, UPT and UPTL have ir registered office at Dunn s House, St Paul s Road, Salisbury, SP2 7BF. JHIC is regulated by Jersey Financial Services Commission and JHAC, JHWM, IPS and IPS Plc are authorised and regulated by Financial Conduct Authority. The provision of Small Self Administered Schemes (SSAS) and trustee and/or administration services for SSAS are not regulated by FCA. Therefore, IPS and IPS Plc are not regulated by FCA in relation to se schemes or services.(01/14) www.jameshay.co.uk JHPIPS 36 MAR14 GDF