Home » Posts tagged 'SIPP'
Tag Archives: SIPP
Pensions are highly tax efficient and you can purchase Commercial Property, the main examples of types of property your pension could buy are
- Industrial units
- Offices and shops
- Farmland and forestry
- Public houses
- Nursing homes
- Marine berth
The things you can’t buy are residential property, holiday property, caravans, beach huts, basically, if you can live in it then it will probably be difficult to put it your pension.
Buying a commercial property can be a great investment opportunity, I have been investing in property since 2002 as part of a small pension syndicate of friends and family we are currently invested in an Office Block and 6 Retail Units, we also bought some properties into separate companies and did originally have HMO’s too.
The yield on commercial property is often around 8% to 10% and you can borrow into your pension to help fund the purchase.
Your business can rent a commercial property from you and many owner managed businesses have transferred company owned premises to a SIPP or SSAS.
There have been some very interesting deals done for example
From a music studio in Costa Rica to a yacht berth in the south of France, Sipp (self-invested personal pension) providers report an ever-growing list of exotic assets being bought with pension money to fund investors’ dream business ventures.
For aviation-mad Tony Fowler, a property developer from West Sussex, the acquisition of a 50pc stake in the Isle of Wight airport through his Sipp means he can fulfil his passion for flight while at the same time investing for his retirement.
“A friend and I have paid half each of the total purchase cost of £635,000,” he said. “I was delighted when I found I could use money in my pension to buy the airport. It had been taken over by the receivers and was going to be closed down, but now it is being renovated and improved. We like to think it will bring something to the local economy as well.”
There have been some further restrictions added so its worth checking the rules before choosing an unusual property
I know that Martin Tilley, Director of Technical Services at Dentons is happy to clarify and help
M 07833 084 639
Often business premises are owned by the business, this could be for many reasons for example the business has multiple owners or it helps to increase the business net worth.
But in many cases it would be better for the premises to be owned by the business owners pension fund because:
- The object of the business is not to own its own property, the objective should be for the business to make profits from trading
- The business could use cash tied up in the premises to invest in trading activities
- Pensions are a very tax efficient method of ownership – no capital gains, no tax on rental profits
- Company Pension Contributions are Tax Deductible and Individual contributions get income tax refunds
- You may be able to use 3 year Carry Forward to get funds into your pension scheme
In summary to move your business premises from your business to a SIPP or SSAS pension you would do the following:
- Find a lender prepared to lend a third of the property value to your pension scheme (which will be half the value of the fund ie if the property was valued at £300k, your pension could borrow £100k which is 50% of the £200k which will need to be funded by your pension scheme)
- Have the premises independently valued and rent assessed and appoint solicitors
- Create a SSAS or SIPP pension (you can include other people in your SSAS or SIPP investments)
- Transfer into your SSAS or SIPP any funds you have in other pension schemes
- As you are the business owner and its your pension scheme your business could make a payment into your pension scheme, the maximum for the last 3 years would be £140k (£50k + £50k + £40k) see details of NRE
- The pension contribution from your company could be an In Specie payment (meaning its in kind not cash)
- You could make a personal payment to your pension and if you are a higher rate tax payer your will get a tax refund via your self assessment return
- Then your pension scheme buys the premises from your business and rents it back to the business
If you have a SSAS or a SIPP Pension you will probably want to invest some of your funds in Commercial Property – Shops, Office, Industrial Units. Pension funds can borrow money and with the current interest rates low and yields as high as 10%, you can increase your return and use less cash by borrowing.
But one thing you may not know is that connected parties can lend to the fund…
Trustees of registered pension schemes may sometimes wish to borrow funds, for example to enable them to purchase an asset. There is no objection to a registered pension scheme borrowing funds for any purpose providing that the scheme administrator/trustees are satisfied that the borrowing will benefit the scheme and that the borrowing is within the rules laid down by the Department for Work and Pensions (DWP).
A registered pension scheme is treated as borrowing or having a liability of an amount, if that amount is to be repaid or met from cash or assets held for the purposes of the pension scheme.
A registered pension scheme may borrow funds from any individual, company or financial institution whether or not they are connected to the scheme, but any borrowing from a connected party which is not made on commercial terms will be subject to a tax charge – see RPSM04104020 .
This is useful where you have paid in the maximum allowed pension contributions but you still have cash, so you could lend to your pension to buy a property.