| Buying commercial property
as a joint asset by a number of SIPP members has been
happening since 1990. Typically these have been
partners in firms of accountants, lawyers, vets, etc.
In recent years, individual SIPP members increasingly
want to invest in the commercial property market but
their individual fund may be insufficient to purchase
a property, even allowing mortgage that is permitted
under HM Revenue and Customs (HMRC) rules.
Property Syndication is where a number
of unconnected individuals all buy a part of a property.
Some of these individuals may not even have a SIPP and
may be making a personal investment. The
SIPP investors can also buy a piece of the property
within this structure.
Types of Syndication
There are three different types of structure that are
used:-
Trust based structure
This is used by a number of commercial property agents
who buy the property and appoint independent trustees
who hold the freehold title of the property as bare
trustees. The syndicate members become beneficial
owners on completion of each individual purchase.
They are tenants in common and can fully identify their
ownership by way of a Trust Deed. This allows
each syndicate member to control the management of the
property and for rental income to be divided between
them in accordance with their level of participation.
Provisions must be made within the Deed to cater
for the death of a member or a member’s need to
sell their proportion of the property.
What’s Happening Now?
Some advisers are creating syndicates with a number
of clients and sourcing a suitable property through
a local agent known to them. A SIPP is established
and monies transferred into it to be used as a deposit.
Mortgages will be arranged through a commercial lender.
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Limited partnership
structure
Registered under the Limited Partnerships Act 1907,
they are generally established for the sole purpose
of the purchase of one property per structure.
They are managed and offered by the limited company
operating the partnership and investors can acquire
equity partnerships either directly or through their
SIPP trustee.
Formal Syndicate Agreement Structure
This is used when a number of individual SIPPS are purchasing
part of an individual property. The formal agreement
sets out terms of the syndicates and clearly defines
the role of all parties.
NB: None of these structures
are authorised or approved by the FSA and are only suitable
for informed investors or those who have been advised
by an IFA.
The SIPP structure enables individuals and their advisers
to take a more diverse approach to investment. Individual
SIPPS can buy parts of properties across a number of
different syndicates.
What the SIPP framework offers is an open structure
in which the philosophy of asset allocation can be applied
and changed with relative ease as appropriate.
Property can be one of those assets to ensure diverse
asset allocation.
Mortgages
Each SIPP has the ability to raise a mortgage of up
to 50% of the net SIPP assets. Thus a SIPP fund of £100,000
could borrow up to £50,000 and therefore invest
up to £150,000 into the property syndicate.
The mortgage must be on a commercial basis and it is
important that all members of the syndicate are aware
of and agree to the mortgage.
For syndicates, the SIPP must have in place the documentation,
system and process to:-
- Service the scheme at an individual and syndicate
level.
- Allocate and audit trail all incoming and outgoing
monies.
- Record all detail at an individual and syndicate
level.
- Understand fully all the complexities of these transactions.
- Support the clients and advisers throughout the
transaction.
- Ensure sufficient insurance in place for building
/ environmental matters.
- For more details of permitted investments in a SIPP
or Property Notes, please contact us.
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