5 important parties your client will deal with when buying commercial property in a SIPP
As you will likely know, IPM are experts in the area of commercial property purchase within SIPPs. We own more than 1,000 properties on behalf of our clients, from traditional shops and industrial units to more unique properties such as fishing lakes and sports stadiums. Read more about the different types of properties we have bought.
Ahead of any transaction, IPM spend time with clients and advisers going through the processes and the costs involved. Not only is purchasing property often a more emotive investment than traditional asset classes, especially if the clients’ own business is to occupy the premises, but it can also be expensive.
Buying a property through a SIPP is no different to any other type of property transaction, with various third parties involved in the process to bring the transaction to completion.
While all transactions are different, read on to discover the typical costs involved in a SIPP property purchase, as well as the other parties needed to complete on the transaction.
1. The SIPP provider
Hopefully, if you are reading this, then you have settled on IPM as your choice of SIPP provider for your client!
While we have one of the most cost-effective offerings in the market for SIPP property purchase, the service and experience offered is equally as important given the nature of the investment your client is making. Read more about IPM’s offering.
One of the main reasons IPM’s charging structure is so competitive for this type of work is that, unlike many of our competitors, once your client has bought a property we do not charge an additional annual fee to hold the property. Neither do we charge annual fees if clients are a member of a group property arrangement. Our annual administration fee of £540 + VAT covers most eventualities.
Instead, we charge one-off fees when certain things happen. For example, we charge a property purchase fee of £450 + VAT, the same fee to arrange borrowing, and a £200 + VAT fee when a lease is put in place outside of a purchase. Here’s more information on the additional fees we levy on property transactions.
2. Solicitors
As with any property transaction, solicitors need to be appointed to represent each side’s interest.
One of the trickier conversations we have with clients is when we highlight that it is IPM who will be the legal owner of the property, held for the benefit of the client. As a result, it is IPM who is the “client” as far as the solicitor is concerned, meaning we are the only party able to give instructions.
We also have the responsibility of ensuring that the transaction completes both within HMRC’s guidelines for SIPP property purchases and in line with our own risk tolerance in our role as trustee.
As such, IPM operates a panel of solicitors, and we instruct a firm from our panel to act on all purchases we make on behalf of clients.
As well as being experienced in the intricacies of SIPP property purchases, we also have an excellent relationship with these law firms having worked with most of them for around 20 years. This means they are already familiar with our requirements and have good relationships with our property team, which can be beneficial when a transaction becomes complicated.
Our panel work to an agreed fee schedule allowing clients and advisers to understand what charges are likely to apply. Not all of the fees listed will apply – some work is not required on specific purchases such as if there is no borrowing, and additional fees can apply where a transaction is particularly protracted.
While we do offer clients the option of appointing their own solicitor, at no additional charge from IPM, we will insist a member of our panel oversees the transaction. This allows us to be confident that our requirements are fully met and also that the purchase is being carried out in line with HMRC’s requirements.
3. Surveyors
One of the HMRC requirements is that the SIPP provider obtains a valuation of the property. There are specific terms this valuation must be produced on, namely that it must be a Red Book valuation including the:
- Market value of the property
- Rental value
- Reinstatement value.
We do not operate a panel of surveyors your client must select from. We are happy for your client to agree terms with any RICS surveyor of their choice. The chosen surveyor’s details are provided to us, and we will then instruct the surveyor once we are in a position to move forward.
Note that, while IPM are happy for clients to use surveyors of their choice, if a purchase is being made with borrowing the bank will often have their own panel of surveyors who they will require to provide the valuation.
4. Property managers
It is an HMRC requirement that a property manager is appointed to look after the property on a day-to-day basis on the SIPP’s behalf.
SIPP providers satisfy this requirement in different ways. Some will insist you use specific property managers for all properties held in the SIPP at a set fee. Some operate a panel a client can select from.
We’re happy for the client to appoint any professional third-party property manager they wish and therefore agree the terms accordingly.
In some instances, we are happy for the client to appoint themselves as property manager. This can be particularly beneficial where a client’s business occupies the property and can provide significant ongoing cost savings to the SIPP.
5. Banks (for borrowing)
For some transactions, your client will require borrowing to fund the purchase.
Again, we do not have panels of banks clients must select from to arrange borrowing. Clients are able to approach any lender and negotiate the terms of the loan to their satisfaction, including the arrangement fee.
It is important, however, to ensure the bank are aware they are lending to a SIPP rather than the client personally. This may affect the decision as to whether they are going to lend. And, of course, SIPPs are restricted to borrowing up to a maximum of 50% of the asset value.
Once terms have been agreed, the client passes on these details to IPM, and we will liaise directly with the bank to complete the necessary agreements and draw down the loan on completion.
As well as banks, clients can liaise with commercial brokers to arrange the best deal for them. We recently asked David Whitehead of Commercial Sense to provide us with his views of the current market for SIPP lending.
Other areas to consider
VAT registration
If a property is VAT registered, IPM will need to register the SIPP for VAT with HMRC. Where VAT is payable on a purchase, this will ensure that IPM is able to reclaim the VAT on the SIPP’s behalf.
Given the additional work VAT registered properties generate, we do levy additional fees here – an initial £200 + VAT to carry out the registration process and a further £200 + VAT a year to complete the quarterly VAT returns.
Stamp Duty
This will apply on SIPP purchases in the usual way. The amount due will depend on the value of the purchase on a tiered scale. Our panel solicitors fee schedule explains more.
Group purchase/split fees
It is worth remembering that, where more than one SIPP with IPM is involved in a purchase, all the fees relating to that purchase (both IPM and third-party fees) are split between the SIPPs involved.
Buildings insurance
We are required to ensure that all properties within our Scheme have full reinstatement building insurance at all times. To ensure our costs remain competitive, IPM arranges for this insurance on a block basis with the premium initially deducted from the SIPP. We will then arrange an invoice to be raised to the tenant for the value of the premium.
Get in touch
If you want to have a chat about a potential commercial property purchase for your client, or any of the other benefits of the IPM SIPP, please contact us. Email info@ipm-pensions.co.uk or call 01438 747151.