Case study: How we recently supported an adviser with an in specie property transfer

This article is intended for financial services professionals only. None of the information contained in this article should be received as advice. Pensions are a complicated area of financial planning and IPM suggests that financial advice from a suitably regulated financial adviser is sought before an individual takes any action in respect of their pension savings.

At IPM, we regularly help to complete transfers in specie of properties from other SIPP providers or SSASs.

These types of transfers are often seen as “difficult”, “long-winded”, or “a lot of hassle” (quotes from conversations we have had with IFAs on the subject!)

Granted… a transfer in specie will not be the easiest or quickest piece of work you carry out! There are a lot more areas to consider than when dealing with a cash pension transfer, for example. 

However, if you have a dissatisfied client, continuing to hold the SIPPs with a provider the client is not happy with for a long period of time can lead to difficulty and higher costs. See our recent article about transfer in specie of property. 

This is an area IPM is hugely experienced in. We can help advisers in the lead-up to delivering the advice, seeing what’s involved in the transfer, what the costs are likely to be, and, being blunt, whether it is worth doing. With one of the most cost-competitive offerings in the market for property SIPPs, coupled with our personal service and individual member of staff allocated to each transfer, IPM is well positioned to assist.

Below is a case study of a scenario we worked on recently, showing our initial discussions with the adviser, some of the areas considered during the advice process, and the steps taken to complete the transfer.

Initial discussion

An adviser had two clients, Harry and Jude. They each had a SIPP with ABC SIPP provider, which held a commercial property on a 50/50 split basis. The property had a third-party tenant who was midway through their lease, there was no borrowing, and the property was not VAT-registered. In addition to this, each client had investments held with the adviser’s preferred platform in their SIPP.

In the past 12 months, the adviser had been made aware that the provider was going to increase the annual property fee that would apply to these SIPPs. 

Following this, the clients requested that works be carried out on the property. Not only were additional fees levied, but the clients also found the experience of dealing with the SIPP provider difficult. 

In the clients’ regular meeting with the adviser, they expressed their frustration with their current provider. 

The adviser started to think about the future. Harry was slightly older than Jude, and it was likely he would be looking to draw benefits from his SIPP in the next few years. The adviser knew this would involve having the property valued, as well as asking the provider to arrange for the payment of benefits. He was concerned about how this would play out given their recent experiences.

The adviser gave us a call where he explained the clients’ scenario and asked us how a transfer in specie would look if they were to explore this further.

• The adviser completed our property enquiry form for our property team to consider the matter further. Usually for transfers in specie, these would be fine, but there can still be discrepancies between what one provider will accept and another will not.
• IPM will not accept a transfer of property with rent arrears. In this instance, there were no arrears.
• We went through costs, as this is likely to be a big factor in deciding whether the clients would proceed. IPM charges a flat annual administration fee of £580 + VAT per SIPP, with a one-off cost of £550 + VAT applied between the two clients to bring the property over. The clients were currently paying a higher annual fee, an annual property fee, an annual group fee, and an annual third-party investment fee for the platform with their current provider – all fees which IPM does not apply.
• Once all costs, both IPM’s and ABC SIPP’s, were considered, the costs of transfer were likely to be negated by the savings in annual fees between IPM and ABC in under four years. As it was the clients’ intention to hold the property long term, the transfer would prove cost-effective.
• Harry and Jude were already unhappy, so it was important to set realistic expectations as to how long this would take and what their involvement would be. See our recent article on in specie transfers of property for further information. 
• IPM could also accommodate an in specie transfer of their current platform account at no additional cost. As a bespoke provider, IPM does not have a default investment solution, meaning the adviser could use his platform of choice with IPM.

Next steps

Based on our discussions, the adviser recommended a transfer in specie of Harry and Jude’s SIPPs from ABC SIPP to IPM.

Before IPM can start any formal work, the SIPPs need to be established and funded, with a minimum amount of £1,500 in each SIPP, which will allow IPM to instruct solicitors. 

Advisers can now arrange for their clients to set up SIPPs with IPM electronically. Alternatively, we can issue PDFs which can be printed off, completed, and returned.

As well as our application forms to set up the SIPP, a property transfer in specie questionnaire will need to be completed. This will give our property team all the information required to instruct solicitors on the transfer.

To carry out the transfer, a valuation on the property will be required. This can be carried out by a surveyor of the clients’ choice. Alternatively, if one has been produced recently, it may well be that this could be used in the first instance. The surveyor’s details will need to be included in the questionnaire.

Discharge forms from ABC SIPP will be required for each of Harry and Jude, completed by them in the first instance. This will allow IPM to start liaising directly with ABC SIPP regarding the transfer. 

The process

Once the SIPPs are established and have the minimum amounts in them, IPM can then instruct our solicitors to act on the transfer.

As transferring property in specie is a change of legal owners, there is little difference from the conveyancing process compared with a regular purchase, except that there is no consideration on completion.

IPM’s solicitors will undertake the usual enquiries and searches, and the ceding provider’s solicitors will respond accordingly.

The property in Harry and Jude’s SIPPs has a long-standing, third-party tenant who is midway through their lease.

One of Harry and Jude’s concerns was that a transfer might disrupt their tenant, who they are keen to retain.

While IPM’s solicitors will look at the current lease, it would be our aim to adopt this lease in its current format, unless there are any clauses that would be detrimental to the SIPPs or IPM. As the lease has already been granted by another SIPP provider, it is unlikely IPM will find any issues with it.

It’s this period when matters can feel like they’re taking some time. Solicitors will have to respond to various queries, and each SIPP provider must process or complete whatever documentation is required from them.

While IPM can’t control the turnaround times of third parties, we always aim to complete our own requirements promptly. We’ll provide updates where these are available. However, we usually aim to work in the background to ensure that the transfer is completed in the quickest time possible.

Completion

Unlike a usual property purchase, where an exchange date is agreed, this doesn’t happen with a transfer in specie because no money changes hands.

Once all the documentation has been signed, searches have been undertaken, and enquiries have been answered, a completion date will be agreed. At this point, the property becomes legally owned by IPM as trustee on behalf of Harry and Jude, and the existing lease for the tenants is adopted by IPM.

We will start liaising again with ABC SIPP at this point. Don’t forget that both Harry and Jude had investments held on a platform. During the period where the property was being transferred, the adviser set up new platform accounts in each of Harry and Jude’s SIPPs. 

Now that the property is across, ABC SIPP instructs the platform to transfer the assets in specie from the accounts in the name of ABC SIPP into the accounts in the name of IPM.

After this, any residual cash in the trustee bank account is transferred to IPM’s trustee bank account. Then, ABC SIPP will discharge its liability for providing pension benefits for Harry and Jude.

At this point, the transfer has formally completed. IPM will write to the adviser confirming this, and going forward, we would hope that Harry and Jude have a better experience regarding their SIPPs.

As with any property transaction, a variety of factors come into play which throw curveballs or cause unanticipated delays. While these sometimes cannot be helped, IPM will always look to work with all parties to find a way forward which is agreeable to all.

We’re here to help you with complex SIPP arrangements

Email info@ipm-pensions.co.uk or call 01438 747151 to learn more.