John Collins

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John Collins Partners LLP

• Venture Court Waterside Business Park
  Valley Way Enterprise Park Swansea SA6 8QP
• T 01792 773773
• F 01792 774775

• Copper Court Phoenix Way Enterprise Park
  Swansea SA6 8QP
• Email law_at_johncollins.co.uk
• Web www.johncollins.co.uk

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Properties as Part of a Self Invested Personal
Pension (SIPP)
Chris Davies Partner JCP Commercial
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Plan

• SIPP Structure
• Property
• Seller
• Buying the Property
• Letting the Property
• Summing Up

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SIPP - Structure
Scheme Administrator
Scheme Provider
Trustee
Scheme Beneficiaries
Co-trustees
Trust
Trustors
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Structure - SIPP

• Who owns the property?
• A SIPP is a fully self-administrated scheme,
• Under such a scheme, assets must be purchased
  directly by the Trust holding the scheme.

Therefore, the trustees of the personal pension
scheme are the legal owners of the property and
not the beneficiaries of the scheme
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Structure - SIPP
NB The beneficiary of the SIPP can be
co-trustee but cannot be sole trustee
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The Property

• Before 6th April 2006, SIPP limited to freehold
  and
• leasehold commercial properties
• e.g. Shops, offices, business units, hotels or
  agricultural lands
• From 6th April 2006, SIPP will be available for
  
• residential properties
• e.g. Buy-to-lets, holiday houses or homes

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The Property

• What type of property is allowed by the Inland
  Revenue prior to 6th April 06?

• Land, whether development land, farmland or
  forestry
• Hotels and motels
• Guest Houses
• Nursing Homes
• Public Houses

Commercial Property in or outside the UK
including
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The Property

• Prior to 6th April 2006, Commercial Property
• with a residential element is allowed

• E.g.
• Caretakers flat
• Part of property occupied by an employee as part
  of their
• employment
• A flat held on a long term leasehold by an
  unconnected party

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The Property

• What type of property is prohibited until 6th
  April 06?

• Residential Properties
• including Residential Properties to be converted
  into
• commercial property unless the status of the
  property has been
• amended to commercial use on the records held by
  the local Council
• Properties owned by a beneficiary or a relative
  of a beneficiary
• (up to 3 years prior to the purchase)
• The aim of this prohibition is to ensure that the
  transaction was
• undertaken on strictly commercial terms
• Fixtures, fittings or business goodwill

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The Property
NB These are the minimum restrictions imposed
by the Inland Revenue but different schemes
impose different restrictions on what is
appropriate
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The Seller

• Before the 6th April 2006
• The sole purpose of a SIPP is to provide benefits
  for retirement - Sole Purpose Test
• The Inland Revenue therefore limits who the
  property can be bought from, to ensure the Sole
  Purpose Test is satisfied

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The Seller

• Before the 6th April 06
• The Rule on Connected Persons

The trustee can only purchase a property from
someone who is not connected with the
beneficiaries of the fund
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The Seller

• Change from 6th April 2006
• The rule on connected persons will no longer
  apply

A beneficiary or a relative will be able to sell
a property to or buy it from the SIPP trust
This will open a much wider range of property
investments
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Buying the Property

• Prior to the conveyancing process, the trust may
  require (depending on the scheme used)
• Valuation of the Property
• to ensure the property price is correct
• to confirm the commercial rental value for the
  lease
• price will usually be require to be within 10 of
  the purchase price
• Environmental survey
• under recent legislation, the trust can be held
  liable for environmental damages. Moreover, it
  will affect the resale price of the property

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Buying the Property

• Borrowing by the scheme
• The trust can borrow money for the purpose of
  financing the purchase of the property in the
  limit of 75 of the purchase price
• From 6th April 2006, the trust will only be able
  to borrow up to 50 of the fund value

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Buying the Property

• Practical points for sale of residential
  properties
• When beneficiaries sell their residential
  property to their SIPP, any existing mortgage may
  need to be repaid
• the trust cannot borrow more than 50 of the fund
• the mortgage by the trust will need to be first
  charge on the title deeds

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Buying the Property

• Some properties place obligations, positive
  covenants or contingent liabilities on their
  owners. SIPP scheme providers may refuse that
  type of liability and may either
• Refuse the property as a suitable investment or
• Appoint the beneficiary as responsible for the
  carrying out of the necessary actions (or ensure
  that the tenant is undertaking them where
  appropriate)

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Letting the Property

• Tenants

The Property can be leased by the Trust to
Unconnected Parties
Beneficiaries
The trust will want to ensure that a rent is paid
and that the terms of the lease are not providing
any other benefits to the beneficiaries
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Letting the Property

• Because of the fiduciary duty owed by the trust
  to the beneficiaries, the trust will want to
  avoid all type of liabilities
• in most cases, the Trust will require a full
  repairing and insuring lease
• Trust will refuse any onerous covenants in the
  lease
• tenant will be responsible for issues such as
  identification and management of asbestos

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SIPP - After 6th April 2006

• Residential Property will be a permitted
  investment.
• It remains unclear how the Sole Purpose Test is
  going to operate
• Beneficiaries will probably have to pay rent for
  occupation of the residential premises as they do
  now for commercial ones.
• E.g. if a holiday house is bought, the
  beneficiary may have to pay rent for the weeks he
  occupies the premises.

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Property in SIPP

• Advantages
• Rental income is paid untaxed into the SIPP
• Up to 75 mortgage is allowed to purchase -
  changing 6/04/06
• No Capital Gains Tax payable on sale of property
• Reclaim VAT on property improvements
• No limit on the number of properties which can be
  purchased
• Fund can buy property from own business and
  continue to use it, with a minimal impact on the
  business's liquidity
• You can purchase a share of a property so long as
  your SIPP is compatible with the scheme for other
  buyers

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Top Tips

• Choose your Scheme provider carefully, depending
  on the type of property you
  want to invest in
• If you wish to invest in commercial property, it
  may be better to buy before 06/04/06

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Top Tips continued

• If you wish to invest in residential
  property,
• you can only do so after 06/04/06
• Remember that SIPPs are long term pension
• investments even though it is a flexible
  system
• (if your investment performs poorly it can
  be sold
• and replaced), funds cannot be withdrawn
  until
• you retire it is not a way of getting on
  the
• property ladder

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John Collins Partners LLP

• Venture Court Waterside Business Park
  Valley Way Enterprise Park Swansea SA6 8QP
• T 01792 773773
• F 01792 774775

• Copper Court Phoenix Way Enterprise Park
  Swansea SA6 8QP
• Email law_at_johncollins.co.uk
• Web www.johncollins.co.uk