Property
Industry experts in commercial property within SIPP and SSAS
We have 30 years' experience in the commercial property space. Our panel experts, alongside a dedicated member of our team will guide you through your purchase and beyond.
A dedicated administrator will deal with all aspects of the purchase of property within your pension and will be on hand to provide updates and answer any queries you may have.
All properties are different and we look at each proposed purchase in detail reviewing all aspects of the purchase to ensure it is allowable as a SIPP or SSAS investment, and won't cause the scheme tax charges. To discuss a new property opportunity speak to your usual contact or call our Sales Support Team on 0115 841 5000.
Property purchase process
Learn more about the property purchase process in our detailed step-by-step flowchart.
Property guidance
Borrow up to 50% of the value of your pension to provide extra liquidity for any type of investment, including for a property purchase.
A pension scheme can borrow up to 50% of the net value of the scheme assets at the point a mortgage is taken out. Although a fall in the value of the pension fund may mean at certain points during the lifetime of the loan this limit is exceeded, it won't be considered to have been breached (providing no additional borrowing is taken out).
The borrowing does not have to be secured, although a high street bank is unlikely to offer an unsecured loan to a pension scheme. It is possible to refinance a mortgage, where it will not trigger a test of the 50% limit (except where the terms of the new loan are substantially different).
If the 50% limit is breached (for example, where a pension scheme takes out additional borrowing) the excess is treated as a scheme chargeable payment subject to the appropriate tax charge(s).
Properties held within a SIPP or a SSAS may need improvements from time to time to keep them up to date or more substantial development work may be conducted to improve their rental/capital value.
Both ongoing maintenance and more substantial work such as structural improvements can be paid for using the SIPP/SSAS funds or through borrowing, provided they are of benefit to the SIPP/SSAS in the long run.
If you decide to develop the property held within the SIPP/SSAS, the normal planning permissions must be obtained. For the development of an existing commercial property this shouldn’t be an issue. But, if there is a change of use from a commercial property into a residential property, then the trustees must obtain consent for that change from the Local Planning Authority.
Once change of use and planning permission has been obtained it can seem complex to develop the property and there are a number of considerations:
- It is important that HMRC does not feel that the SIPP/SSAS is ‘trading’ by buying property, developing it and then selling it. If they deem this to be the case then there may be a tax charge on profits and income arising.
- If the work is to be carried out by your own firm or a connected party, then it is important to obtain a number of comparable quotes to evidence that it is a fair price for the work carried out
- A SIPP cannot hold residential property, and so during the development cycle, it must be disposed of prior to it becoming habitable and receives a habitation certificate
We are well placed to guide you through this complex process so please speak with our Adviser Support Team in the first instance with any queries.
One area that can be a concern when purchasing commercial property is any issues arising in the form or environmental issues which may impact on the property now and in the future.
Before proceeding with a property purchase we will perform a desktop environmental survey of the site, to identify any environmental risks of which we need to be aware. If the survey highlights areas of concern, in many cases the existing owners of the property can provide suitable documentation (from the previous acquisition of the property) that will address those concerns adequately.
In some instances it will be necessary for us to contact the local Environment Agency for details of any action they are planning to take in relation to the identified environmental hazards. This may necessitate that a more expensive insurance policy is put in place by the scheme members (although insurance premiums can be paid by the pension scheme).
An alternative arrangement available to SSAS schemes is to have the property purchased by the scheme subject to a Restriction of Title. The corporate trustees of the scheme will not be the legal owners of the property, and so are not liable for any expenses relating to the actions of the Environment Agency, but the property cannot be disposed of without our agreement.
The members may still wish to make their own arrangements to identify and insure against environmental hazards.
One of the benefits of buying commercial property through a SIPP or SSAS rather than directly or through a company are the tax benefits.
As with other pension investments any income received such as rental is exempt from income tax, and any gains made on the disposal of the property by the pension scheme are free from Capital Gains Tax.
On the death of the scheme member any cash funds raised by the sale of the property are also normally exempt from Inheritance Tax, along with any other pension benefits. The same applies if, instead of being sold, the property is transferred directly from the pension scheme to the member’s beneficiaries.
However, the acquisition of property by a pension scheme is treated as a disposal for money’s worth, so certain tax charges may be incurred at the point of acquisition. The vendors of the property may be liable for CGT/Corporation Tax on any gains made from the sale of the property to the pension scheme, and depending on the value of the property the pension scheme may be liable for Stamp Duty Land Tax.
If the property purchase is subject to VAT then the pension scheme will also be liable for this additional expense, although a pension scheme can be registered for VAT to reclaim any VAT paid. Provided the normal conditions are met, a pension scheme can also accept a transfer of property as a going concern, which will mean no VAT is payable at the point of purchase.
The pension scheme may also be required to charge VAT on rental income, and account to HMRC for the tax charged.
Please bear in mind that neither TM Trustees Limited nor Talbot and Muir are qualified VAT specialists. We therefore recommend that the VAT application and quarterly returns are dealt with by such a specialist. A successful VAT registration does not imply that any subsequent reclaim of input tax will be successful and, as mentioned above, advice should be sought from a qualified VAT specialist before registering.
Guides
Panel of professionals guide
SIPP Self Managed Property guide
SSAS Self Managed Property guide
Frequently asked questions
Q. What is the reinstatement value?
One of the most common myths of insurance is putting forward the market value of a property for its reinstatement value.
The reinstatement value is the figure you provide that represents the totality of all costs to redesign and rebuild your property. This will include a wide assortment of expenses: demolition, removal of debris and hazardous materials; legal and local authority expenses; material, labour and architect’s design costs. The construction market will dictate many of these costs, based on supply and demand in their sector at the time of reinstatement.
What a property can potentially sell for is not a measurement of what the property will cost to rebuild.
Setting the right reinstatement value will require the advice of an RICS qualified Building Surveyor.
Q. What are the consequences of a property being underinsured?
If the reinstatement value is too low, then insurers may enforce an average clause, meaning the claim settlement will be proportionately reduced in line with the uninsured amount. If your value is deemed to have little bearing to the true cost, then insurers could even consider that the risk has been misinterpreted, void the policy, and refuse the claim. If the insurers refuse a claim for any reason, we cannot accept any liability for the resulting loss to the pension scheme.
Q. What can I do to prevent underinsurance?
Any level of underinsurance is likely to affect a pension fund’s ongoing liquidity and may even affect the schemes ability to pay ongoing benefit payments.
A simple step to avoid this is to ensure the property holds an up to date, formal Reinstatement Cost Assessment (RCA) value from a chartered surveyor.
As most policy wordings will give you the benefit of the doubt if you’ve used a reinstatement value from a RICS-approved survey, this mitigates the risk of the average clause being applied. The value should be obtained before the policy starts and should be updated every three years.
As well as the building value there are other areas in which your Property Owners’ insurance may need to be regularly reviewed, such as loss of rent, public indemnity and contents cover.
Please be aware, once the property has been held within the pension scheme for 3 years, where the property is insured on the block insurance policy, an RCA will be carried out via your chosen provider, and you will be contacted in relation to this. Subsequently, an RCA will be carried out every 3 years. The costs for this will be covered by your pension fund.
Q. What are Talbot and Muir’s minimum insurance criteria?
The minimum criteria for any insurance arrangement is as follows:
- £10 million property owners’ liability cover
- 36 months’ loss of rent cover
- Terrorism cover
- Core perils (e.g. fire, flood, subsidence) are covered in the policy
- SIPP/SSAS named as policyholder (or joint policyholder where applicable)
- The total sum insured value is based on a reinstatement value as required by your chosen insurer.
Q. Who pays the insurance premium?
Where a lease is in place, this will normally be on a full repairing and insuring basis so the costs can be recharged to the tenant. However, the costs for any un-let property are covered by the pension.
In our experience, financial advisers and their clients occasionally have concerns about putting a commercial property into their pension scheme. Below we have listed some of the most common questions that we are asked.
Q1. What type of property can I purchase with my pension?
Pension schemes can invest directly into most forms of commercial property, including:
- Offices
- Industrial units
- Land
- Hotels
- Retail units
Under no circumstances can a pension scheme directly acquire a residential property without incurring substantial tax charges.
Q2. Do pension transactions take longer than a normal transaction?
Using lawyers who are familiar with the pension provider’s requirements will certainly speed up the process and pension legislation. Pension providers often have specific considerations that need to be reflected in the purchase documents. Involving solicitors who are familiar with these requirements early on can help streamline the process and reduce the likelihood of delays caused by late‑stage document review or revisions.
Nevertheless, as with all property transactions, solicitors will need to carry out the required searches, and the findings may result in additional enquiries. This can occasionally extend the timeline for completing the purchase.
Q3. The property we are looking to acquire is already owned by us. Can we still purchase this with our pension scheme?
Yes, although as HMRC would deem this to be a purchase from a connected party, the purchase price would need to be supported by a valuation undertaken by a RICS certified surveyor. Where the tenant is a connected party, we would also need the initial market rental level to be confirmed by a RICS certified surveyor.
Q4. Can we borrow to assist with the purchase, and will this delay the purchase?
A SIPP or a SSAS can borrow up to 50% of its net asset value in order to assist with the purchase. It is likely that a third party lender, such as a high street bank, would wish to secure their loan against the property being purchased which would usually mean that they would require due diligence to be undertaken on the property. This can mean that the timescale for the purchase can be extended by a couple of weeks depending on their requirements. A SIPP or SSAS can also borrow from a connected party, although the transaction must be at arms-length and on commercial terms.
Q5. I think I could benefit from putting property into a SSAS or SIPP, but I’m restricted from doing so because there is a residential element to the property. Is it possible to work around this?
It is sometimes possible to split the residential element of a property from the commercial, which would enable the pension scheme to only purchase the commercial element and avoid any tax charges that owning the residential would cause. The residential and freehold parts of the building will normally be held by the client, with the pension scheme acquiring a long leasehold interest in the commercial element only.
Q6. Do I need to ensure that the property is insured?
Yes! A property is often one of the largest assets within a pension scheme and generates a regular income for the trustees. It is important that the trustees give careful consideration to the insurance purchased for their property, to ensure that their investment is not at risk if an unexpected event occurs. Taking time to review and understand your policy, presenting a clear view of all the relevant risk information (including seeking appropriate guidance to avoid under insurance), will all help to ensure that it responds as trustees would hope should disaster strike.
Please contact a member of the Adviser Support Team if you have any enquiries on 0115 841 5000.
It is not necessary to sell the property provided there are sufficient other liquid assets that can be sold to pay pension benefits. If, however, more income is required then it is possible to sell the property to a connected party or on the open market.
Yes, although there can be issues and risks associated with this type of purchase. We strongly recommend you check with us beforehand that it will be allowable within the SIPP/SSAS.
Funds should be ready in the SIPP/SSAS to purchase the property because there may be a time limit on completion of auction purchases.
Pension schemes are able to purchase assets from the scheme member and connected parties (including connected companies, such as the member’s employer). However, it must be demonstrated to the satisfaction of HMRC that any such purchase takes place “at arm’s length”.
In practice this means that the pension scheme will have to purchase the property at market value, as determined by an independent valuation. This also applies to the rental amount that the pension scheme should charge a tenant with a connection to a scheme member.
A registered pension scheme can accept an “in specie” transfer of property from another registered pension scheme. Although many of the legal and administrative processes are the same as a normal acquisition, this is not treated as a disposal for money’s worth, and so there is no Stamp Duty liability (and the existing pension scheme is already exempt from CGT).