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HMRC internal manual

Pensions Tax Manual

General principles: overview of pensions taxation: investments

The tax rules relating to registered pension schemes do not impose any restrictions on the type of assets schemes can invest in although there may be tax charges in relation to certain types of investment - for example, those aimed at taking value out of the pension scheme.

There are also tax consequences if a pension scheme invests in taxable property which includes residential property and tangible moveable assets (see PTM125000).

Although the pensions tax legislation imposes few investment restrictions on registered pension schemes they still need to comply with all relevant Department for Work and Pensions, Financial Conduct Authority, or other general restrictions outside of the tax law.

Tax exemptions

Section 186 Finance Act 2004

Investments by registered pension schemes qualify for various tax exemptions - the most important are:

  • income derived from investments or deposits held for the purposes of a registered pension scheme is exempt from income tax
  • gains arising from the disposal of investments (including income from futures contracts and options contracts) held for the purposes of the scheme are exempt from capital gains tax (section 271 Taxation of Capital Gains Act 1992).

The above exemptions do not apply to income or gains derived from investments or deposits held as a member of a property investment Limited Liability Partnership.

Taxable property (such as tangible moveable property or residential property) held in an investment-regulated pension scheme is subject to certain tax charges (see PTM125100 and PTM125200).

Repayment of income tax

If a registered pension scheme has had income tax deducted from its investment income, that tax can be reclaimed from HMRC. The legal owner of the scheme’s assets is responsible for reclaiming tax, which in a trust based scheme will be the trustees.

Repayment claims can be made by either:

  • the legal owner of the scheme’s assets, or
  • a third party authorised by the legal owner of the scheme’s assets.

Further information on reclaiming tax deducted from investment income can be found at: Pension trustees (GOV.UK) and Pension trustees: reclaim tax (GOV.UK).