Did you know that holding land in a Self-Invested Personal Pension (SIPP) can help you make considerable tax savings on any appreciation in the value of land?
Transferring agricultural land into a SIPP before receiving planning permission to build property on it can lead to avoiding a large tax bill.
The main benefits from this approach are:
- Capital Gains Tax (CGT) is greatly reduced, possibly even zero
- Inheritance Tax (IHT) considerations are eliminated completely
- Control of the asset is retained completely, unlike if placed into a trust or gifted away
- If retaining complete control is not desired ownership can be split and the land owned by up to four people.
Here’s a hypothetical example to demonstrate the potential savings.
John, aged 60, is considering applying for planning permission on his one-acre field. The approximate present value of the field is £10,000 but if he is successful in receiving planning permission to build 10 houses on it, the value jumps and a developer would be willing to pay £500,000.
CGT outside SIPP
If John sells the land right away this £490,000 gain (£500,000 - £10,000) is subject to CGT (assume 20% rate). He needs to pay £98,000 (20% of £490,000) in CGT.
IHT outside SIPP
If John holds onto the land until his death, at which point it is then sold to a developer for £500,000, it would be subject to IHT (assume 40% and that his primary residence has already exceeded £325,000 the tax-free threshold).
Whoever inherits the land therefore has to pay an IHT bill of £200,000 (40% of £500,000), relating to the land.
CGT with SIPP
If the land is placed into a SIPP before it receives planning permission the £490,000 gain comes under a tax wrapper. In other words, no tax is paid. CGT (assume 20%) would still be levied on the £10,000 original value, meaning John needs to pay £2,000. This is a saving of £96,000 versus outside the SIPP (£98,000 - £2,000).
IHT with SIPP
As SIPPs can be passed on with no tax treatment, if John still held the land at the point of his death, no IHT would be paid. This is a saving of £200,000 versus outside the SIPP.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited 11/08/2023.
Inheritance tax planning is not regulated by the Financial Conduct Authority.
Trusts are not regulated by the Financial Conduct Authority.
Tax treatment varies according to individual circumstances and is subject to change.
The value of investments can fall as well as rise. You might get back less than you invested. You should only consider these products if you are willing to take some risk with your capital. We will consider whether such products are suitable for you before recommending an investment.
Quilter Cheviot Financial Planning is a trading name of Quilter Private Client Advisers Limited which is an appointed representative of Quilter Financial Services Limited and Quilter Mortgage Planning Limited, which are authorised and regulated by the Financial Conduct Authority.
Registered in England and Wales. Registered number: 06201261, registered address: Senator House, 85 Queen Victoria Street, London, EC4V 4AB.
Quilter Financial Services Limited and Quilter Mortgage Planning Limited is entered on the FCA register (https://register.fca.org.uk/s/) under reference 440703 and 440718. Trusts, Estate planning, some Buy to Let Mortgage, Taxation and Inheritance Tax Advice are not regulated by the Financial Conduct Authority.
The representative member of the VAT group is Quilter Business Services Limited. VAT registration number: 386 1301 59.