The Environmental, Social and Governance initiative has been gathering momentum for quite a while and trustees have been under pressure to consider and implement investment strategies to encompass this.
The Government even launched a Minister-led taskforce in July with the intention of supporting scheme trustees and the wider pensions industry with some of the challenges they might encounter.
Aside of the fact that said Minister is no longer in office, a recent case study highlighted one of the challenges faced by trustees – the Government’s own legislation. Now this may be a case of unintended consequences but in my own the view, in this situation, the law is an ass!
Since pension simplification, legislation has prevented investment in tangible moveable property.
I am certain that the intention was to avoid investment in works of art, fine wine, jewellery, classic cars, or other chattels which are difficult to store and prevent them from unauthorised use. It would also prevent investment into plant and machinery that might be used by an employer, for example one using a Small Self Administered Scheme. And with this I have no problem.
However, the definition also includes any fixtures and fittings of a building which do not form part of the fabric of the building and it here that some common sense needs to be applied. I can see that it would be wrong for a scheme to own the chairs and desks within a commercial building which it owns and leases to the founder employer, but what about post purchase improvements, such as the installation of solar panels on the roof?
One of our clients simply proposes that the trustees purchase and install the solar panels, the beneficial gain from which would be passed on to the tenant – a reduction in their energy costs through the use of the solar generated electricity.
The trustees would be able to increase the rent for the building, thus profiting from their capital outlay. The planet is better is better off because less electricity requires generation from fossil fuels. It would seem that everyone is a winner.
Except that, it could be argued that the solar panels might be removed from the roof of a building without damaging the structure or fabric of it. In which case, as tangible moveable property, the investment into the solar panels would be a taxable event.
If any doubt about this uncertainty exists, readers only need to review the case of Peel Land and Property (Ports No. 3) Ltd v TS Sheerness Steel (2013). In this case, a warehouse contained a large crane that ran on rails. It was concluded that the crane was mobile and, if removed, could be used elsewhere, and would not damage the land or building, whereas the rails on which it ran were affixed to concrete foundations and were deemed part of the structure.
The uncertainty of a potential tax charge might easily lead to a rejection of the proposal, since there would no wish to incur a tax charge, nor suffer the costs in time and money of trying to defend the investment if challenged.
I would like to suggest then that the Government clarifies this issue and where legitimate investment is to be made which falls in line with the ESG initiative (such as solar panels and wind turbines) that they be exempted from any taxable moveable property charge and trustees can then proceed with certainty.