I have a GIA (general investment account), currently valued at around £170,000. I’m looking at how best to preserve this investment in the most tax efficient manner.

I would like to transfer from the GIA into a SIPP. However, I realise any gains over the £3,000 CGT allowance will be taxed at 18% as a basic rate taxpayer. Do I have to sell the current shares from my GIA and then repurchase in a SIPP, or can this be done automatically similar to a ‘Bed & ISA’?

Is it possible to transfer some of the investments in this fashion into my SIPP within the £60,000 maximum annual limit? Can I then use the carry forward allowance for the previous years for my unused pension contribution allowance, to recoup 20% tax relief from HMRC on the money I transfer using this method? 

How easy is it to do this? Is it automated or do I need to declare the transfer myself to HMRC to claim back the 20% tax?

Jonathan

Rachel Vahey, AJ Bell Head of Public Policy, says:

A frequently-asked question regarding the accumulation of assets in various tax wrappers is how these assets can be moved between different wrappers.

Pensions are extremely tax-efficient. Not only do individuals get tax relief on the contributions they pay into pensions, but the pension investment is mainly tax-free, making it easier for people to build up a retirement pot. Therefore, it’s natural you want to explore making the most of these tax advantages.

When thinking about moving assets, it’s easy to get confused between ‘transferring’ and ‘contributing’. Simply put, transferring is when you move assets between two wrappers of the same type without realising them. For example, when you transfer ‘in specie’ from one pension scheme to another pension scheme without selling the assets. Contributing is when you pay cash into a pension scheme from your own funds.

The bad news is, you can’t do a straight ‘in specie’ contribution of assets from a general investment (dealing) account into a pension. HMRC looks harshly on this practice.

If you want to move your general investment account assets into a pension wrapper, you have to sell them, realise the cash and buy the asset in the pension. However, the good news is there are a couple of ways to do this.

First, many providers offer a ‘bed and SIPP’ approach. This is when you sell the general investment account’s asset and then treat the proceeds of the sale as an individual contribution into the pension. This process can be accomplished over a couple of days, reducing the amount of time you remain ‘out of the market’.

This means in all likelihood there will be a capital gain (or loss), and you may have to pay CGT (capital gains tax) on that amount. Everyone has a CGT annual allowance of £3,000 to offset against any gain, and you will pay CGT on any excess at 18% if you are a basic-rate taxpayer or 24% if you are a higher-rate taxpayer.

The second way to move assets into a pension is to sell the asset and for the pension scheme to immediately buy it from you. For this to work you need to have the available cash in the pension to immediately buy the asset.

So, if the value of the shares you sell is £10,000, the pension needs to have £10,000 in cash. The deal must be done at ‘arms’ length’, by which I mean there can’t be any special conditions attached, such as a cheaper price. 

Again, there could be CGT to pay, but the advantage to this second method is you don’t spend any time ‘out of market’, meaning you can better protect the value of your investment.

Whether you pay a contribution as a result of the sale of the asset, or you pay a contribution to the SIPP ahead of the sale to allow it to buy the asset, you need to have one eye on the maximum contributions you can pay into pensions.

As a brief reminder, an individual can contribute to their pension the higher of £3,600 or 100% of their relevant UK earnings, including tax relief.

On top of this, there is the standard annual allowance of £60,000, which includes any personal contributions, employer contributions and tax relief. (This could be lower if someone is a very high earner or has previously ‘flexibly accessed’ their benefits, usually by taking taxed withdrawals from their flexi-access income drawdown plan, which is called the Money Purchase Annual Allowance.)

It may be possible to boost the annual allowance above £60,000 by carrying forward any unused annual allowance from the previous three tax years (unless the MPAA has been triggered). But remember, the contribution is still subject to the first rule of not exceeding the individual’s personal earnings.  

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