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SIPP / SSAS: COMMERCIAL PROPERTY MATTERS

MW Pensions
14 June, 2012


Contributed by MW Pensions. [www.mwpensions.co.uk]

This is meant for financial advisers and members of the public should not rely on it

We would like to announce the formation of a like minded group of professionals, with years of experience and expertise in the various transactions involved in using pension schemes to buy commercial property.

Collectively we can offer a comprehensive service covering all aspects of the property purchase using pension structures.

• SIPP/SSAS Provider well versed in property purchase and client support

• Legal advisers with years of experience in the purchase of property using

SIPP/SSAS

• Banking and mortgage services: Bank deposit rates

• Comprehensive and competitive insurance service


A SIPP or SSAS can be a useful vehicle for owning a commercial property, especially if you are both investor and tenant, in your own company premises.

Sadly the experience of buying a property using a pension scheme, can be extremely problematic in practice, for a variety of reasons, including lack of clarity about the costs, fees and timescales. There may also be issues about expertise, service and support..

Commercial Property Matters is designed to provide intelligent solutions to the above problems and will provide:

• Transparent, competitive and simple cost and service proposition

• Clear overview from the outset of the duration of the whole process

• Communication and updates at key stages of the transaction

• Dealing with the same group of people throughout – no call centres

• An emphasis on high quality service, support and communication

• Years of experience, expertise and knowledge

• Specialist solutions such as Syndicate Agreements


If you would like to know more about this proposition, the services provided and the costs involved, or would just like to discuss your situation, please don’t hesitate to contact us.

Why use a Pension to Buy Commercial Property?

A pension can be a really useful way of owning a commercial property. Both tend to be long term arrangements. There can be great advantages, especially when the investor is also the tenant.

The advantages include:

Tax advantages

• When selling a company owned property to a SIPP/SSAS:-

• When the property is ultimately sold by the pension there is no CGT payable

• The assets in the pension, including the property should fall outside the member’s estate

• Rent paid to the pension is a deductible business expense and can reduce income/corporation tax

• Rental income to the pension is free of tax

• As a pension asset the property would not usually be available for to creditors

• Can release capital back into the business


Succession planning

• Where there is a syndicate of older and younger members, the older members can sell their share to the younger members. This enables liquidity to pay benefits to the older member and enables younger members to maintain the tax benefits above.

• If there is a common trustee for transferring property investments there is no SDLT


Borrowing

• A SIPP can borrow up to 50% of net fund value

• There is no corporate or individual liability because ownership lies with the trustee


Retirement options

• Rental income should be known so income payments can be planned

• A regular rental stream can help to maintain fund value (but not guaranteed)


Death benefits

• Property can be paid as a lump sum in-specie death benefit

• Dependant could hold the fund as a drawdown and the property could remain invested and producing rental income.


* Please consider the following worked example

Potential Property Returns: Comparison between in a SIPP and personal ownership

Assumptions :

• £200k property held for 10 years

• Rental yield 8% pa, interest on rent 3% pa

• 40 % tax payer, property accrues at 3% pa


Within SIPP

• (£200k may have attracted tax relief of £80k)

• Rental over 10 years = £160k

• Interest over 10 years = £26k

• Property accrual over 10 years = £68k

• Gross value after 10 years = £454k


Owned personally

• Rental over 10 years = £160k less 40% tax = £96k net

• Interest over 10years = £9.5k

• Property accrual after 10 years less CGT = £52K

• Gross value after 10 years = £357k


NB. No allowances have been made for initial, ongoing and end costs on either side

Some disadvantages

o Property owned by SIPP Trustees

• Liability on member if tenant to pay rent even when in financial difficulties

• SIPP fees have to be paid

• Market rent will now need to be paid

• SIPP Provider may need to chase member for rent if also the tenant

• It is an illiquid investment, so benefit payment may be difficult

• If property is main asset it could lead to poor investment diversity

• If property is empty, loan repayments, business rates etc. will need paying

• There may well be other disadvantages. You must weigh everything up just the same way as when you make any investment before taking the plunge.




MW Pensions Ltd
Oaklands Park
Hooton Road
Hooton
South Wirral
CH66 7NZ

Tel: 0151 328 1777 
Fax: 0151 328 0707    

website: www.mwpensions.co.uk
e-mail: admin@mwpensions.co.uk

Authorised and Regulated by the Financial Services Authority







 


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