Are CFDs allowed in Sipps?


Q.: Are CFDs allowed in Sipps?

A: Changes to tax rules have made it possible to invest in CFDs and other derivatives within a self-invested personal pension (Sipp) which gives tax relief on the money you pay in. Anyone holding a self-invested personal pension (Sipp) can invest in CFDs on shares listed on a recognised stock exchange, and CFD issuers now offer dedicated CFD Sipp accounts.

Unlike ISAs, SIPPs have few restrictions. An ISA may only contain stocks listed on an official stock exchange (so no AIM stocks, as it's not an official exchange), with some additional restrictions. A SIPP is much less restrictive and can include all sorts of derivatives including contracts for difference, UK listed warrants and US traded stock options.

However, be aware that only a small number of brokers providing tax-free SIPP wrappers (Self-Invested Personal Pensions) will accept CFDs. Selftrade, for instance, does not make its CFD accounts available as part of a Sipp. And the ones that do have strict scrutiny and monitoring requirements before they will allow you to proceed. This is because the Self Invest Personal Pension (SIPP) provider acts as a trustee and as such should a client fall into a negative balance the broker could be held liable.

One important restriction placed on Sipps is that no instrument should have a contingent liability. This implies that you should not be able to lose more than you have invested. So only contracts for difference (CFDs), with a guaranteed stop-loss are permitted while spread betting must be conducted outside of the account. Also, should your account move into negative territory you may be forced to inject further cash into the SIPP to meet a margin call and this is subject to a 40% HM Revenue and Customs unauthorised payment charge, which will cost you even more i.e. you may incur a tax charge for exceeding the annual or lifetime limits.

 

Q.: Are there any advantages of trading a Contract for Difference (CFD) in a Self- Invested Personal Pension (Sipp)?

A: Trading a CFD in Sipp would probably be a good choice for higher income tax payers who have confidence in their investment abilities and don't want to incur pension fund management fees. A Sipp is a tax efficient investment product and using CFDs would avoid having to pay stamp duty on share purchases. The only drawback of this is that such funds (and any profits) are tied up until traders reach retirement age.

Q.: Do any know of a SIPP trustee that allows CFD trading via one of their listed Brokers? To summarise I'm looking for a new trustee/broker pair that will facilitate CFD trading in a SIPP.

A: Unfortunately, availability from Sipp providers can be somewhat limited, however I believe http://www.pointonyork.co.uk/ do offer the ability to trade contracts for differences in a SIPP and permit the CMC Markets platform. I believe IPM Pensions will also act as Trustee to your SIPP. They say they will support numerous trading platforms (as long as the broker will trade SIPP funds). When I enquired they specifically told me they would permit me to operate a CFD SIPP with the GFT platform (GFT are ok with this too). IPM's charge for this is not the cheapest though - £540 plus VAT = £648 per annum.


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