“HMRC approved?” Have HMRC ever approved any investment? In a word: NO.

Posted on June 18, 2016 · Posted in Chris Mansfield - Blog

Now here’s a question: when was the last time you called your Tax Office for investment advice? I sincerely hope that your answer is: “never”. Because your Tax Office has only got one job: to take an appropriate amount of your money from you, not to help you make your money make you any more money.

Despite this self-evident truth, you may see investments that claim they are “HMRC Approved”.

Let’s just see how much of a lie that really is.

To do this, let’s agree two important facts about the alternative investment market straight away:

       Firstly: when you know where to look, it has a great many strong return opportunities.

       Secondly: when you don’t know where to look, you may well come across sellers that will lie straight to your face.

You can immediately see the problem – for the uninitiated, or naive, or just plain trusting, there are a lot of people out there who will happily exploit your lack of knowledge to their advantage. And it’s these people who will happily tell you that their investments are “HMRC Approved”.

Let’s look at some live examples.

Over the many years that I’ve been talking to investors about property investing, I’ve made it my business to watch the market. And in assessing any investment, I apply a number of criteria that let me arrive fairly quickly (and as it turns out, rather accurately), at a conclusion about its worth.

Accordingly, I quickly divide investments into one of three categories:

  1. Investments that I’d be happy to invest in, so I’m happy to discuss them with my clients.
  2. Investments that I need to have more background information on, in order to make an informed decision.
  3. Investments that I wouldn’t touch with a very long barge pole.

So let’s look at the “HMRC Approved” claim in that context.

The fact is, that HMRC can, and do, “approve” certain investments and fund structures – but here’s where you need to appreciate the small print – they only, and strictly only, “approve” these in relation to their income tax relief. There is absolutely no attempt, or intention, by HMRC to qualify, or judge, or approve, any investment vehicle, of any sort, ever.

For example: if you were considering investing in an Enterprise Investment Scheme (EIS), then HMRC would tell you the following: “The managers of an investment fund may, if they wish, apply for the fund to be approved by HMRC. Approval carries certain limited advantages, which apply in relation to income tax relief only. They are that: a) the £500 minimum subscription applicable before 6 April 2012 (see VCM10520) does not apply, b) provided 90% of the fund is invested within 12 months after the date when the invitation to participate in the fund closes, (6 months for funds which closed before 6 October 2006) the shares are regarded as issued on the closing date. This will always be earlier than the actual investments, and may in some cases by in a previous tax year. The Guidelines for the Approval of EIS Investment Funds explain the criteria that determine whether a fund can be approved.”

And that’s it. You’ll notice that there’s no attempt to give opinion on or approve the investment itself.

Another example would be Investment Trusts. About which HMRC say: “An approved investment trust is one which the Commissioners of HMRC are satisfied meets all of the conditions in section 842 ICTA 1988 (see CTM47205 onwards). Approval is given for and by reference to a particular accounting period and in order to gain approval the conditions must be met throughout the whole of that accounting period. Detailed guidance on each of the conditions is given at CTM47200 onwards. An approved investment trust is subject to Corporation Tax on its income in the normal way, but is not subject to tax on any gains. An ‘unapproved’ investment trust is one which has not been approved under section 842 ICTA 1988. These investment trusts are subject to Corporation Tax on all of their profits in the normal way and do not benefit from any of the exemptions described above.”

Again, you’ll notice that there’s no attempt to give any opinion on, or to approve, the investment itself.

So here’s the point of all this: if the investment that you’re considering, whether it be in, for example, a car park, or an overseas property investment, or UK student accommodation, or whatever, says that it is “HMRC approved”, now you know that it actually ISN’T.

And if you’re still uncertain, and you have a specific investment that you’re considering, please just call me, and I’ll be happy to tell you anything that I know about it. Just call me, Chris Mansfield, direct on 01273 763 900, or alternatively email me on at c.mansfield@davenport-wealth.com.