SIPP / SSAS: COMMERCIAL PROPERTY MATTERS
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
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 dont 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:
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 members 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
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
A SIPP can borrow up to 50% of net fund value
There is no corporate or individual liability because ownership lies with the trustee
Rental income should be known so income payments can be planned
A regular rental stream can help to maintain fund value (but not guaranteed)
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
£200k property held for 10 years
Rental yield 8% pa, interest on rent 3% pa
40 % tax payer, property accrues at 3% pa
(£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
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
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
Tel: 0151 328 1777
Fax: 0151 328 0707
Authorised and Regulated by the Financial Services Authority
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