Points to Consider
Although not exhaustive, the following are areas which should be taken into account when considering a commercial property for purchase within a SIPP:
Asbestos and Disability Discrimination Requirements
It is important that prior to considering purchasing a property within your SIPP that the property complies with the current legislation.
The majority of this legislation places the responsibility for compliance on the persons occupying the property.. In the majority of cases this will fall on the occupying tenant.
If the property becomes vacant or the tenants are not deemed responsible under the terms of the occupational lease then the cost of any compliance will fall on your SIPP.
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Connected parties
It is generally permissible for your SIPP to buy or sell a property to someone who is connected to you.. The transaction must be on fully commercial terms.. Please contact the property team for further information.
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Environmetal Matters
The environmental agency now has a policy of actively pursuing property owners to clean up contaminated land.. As IPM is the sole trustee and the legal owner of any land or property purchased it is essential that every precaution be taken to ensure no contaminated land is acquired.. Part of the instructions to our solicitors are that on every case they undertake a desk top search of the site and from this we will be able to determine if further investigation is necessary.
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Property Management
IPM will not insist on the appointment of a professional property manager where the member agrees to undertake the role personally.. The appointment of the member will be evidenced by a management agreement which will cover collection of rent, reviews, property maintenance etc.
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Valuations
An independent valuation will be required in all cases and IPM will require the surveyor to provide:
• a description of the property and comment on any environmental risk
• the open market value
• the open market rental value
• a buildings insurance reinstatement value
IPM or the lender (if appropriate) will appoint a suitably qualified surveyor to undertake the valuation.
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Borrowing
It is possible for a SIPP to borrow funds to purchase the property however the SIPP can only borrow 50% of the net scheme assets of the pension fund.
For example, with a fund value of £200,000 the maximum borrowing would be £100,000, giving a total available fund to buy property, and pay for any costs, of £300,000.
If there is currently existing borrowing for an earlier property, this must be taken into account when determining the maximum new borrowing.
For example with a gross current fund value of £200,000 where there is existing borrowing of £50,000, this would give net scheme assets of £150,000.. 50% of this figure would appear to allow borrowing of £75,000.00 however the original borrowing of £50,000 needs to be deducted, leaving a new borrowing capacity of only £25,000.
Any liabilities for VAT must be taken into account in this borrowing exercise as no additional amount can be included to fund any VAT payment, even though it can be reclaimed within several months.
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What Happens in the Event of Death
How a property will be dealt with in the event of a client’s death will depend on whether benefits have been taken from the SIPP and also if the client was a member of a group.
If a client dies before benefits have been taken the full value of the SIPP is available to be paid as a lump sum and prior to age 75, this payment is not normally subject to tax.. If this option is implemented the property would need to be sold to provide the benefits.. However, if instead the benefits are paid as a pension to the spouse, it may be possible for the property to continue to be held within the SIPP.
The same options apply if the client is already receiving income from the fund at the time of their death.. However, the lump sum payment is subject to a 35% tax charge.
Tax planning advice is essential when considering such an option.
I.P.M. SIPP Administration Limited, Cintel House, Watton Road, Ware, Hertfordshire SG12 0AD Tel 0845 130 3443 Fax 0845 230 3443
email info@ipm-pensions.co.uk I.P.M. SIPP Administration Limited is authorised and regulated by the Financial Services Authority.
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