Sipp question - Commercial/Residential

smurph306

At what point does a piece of ground with planning permission become residential?

Is it when you begin building works, or when you connect the utilities or when you put the door on........? My sipp provider said it was when building works start. But I thought to myself what makes it residential just because you start building. I was interested in buying a plot of land and building on it using my SIPP. Any help on this is appreciated.

dunstonh

At what point does a piece of ground with planning permission become residential?

When it is deemed to be by the trustees of the scheme.

But I thought to myself what makes it residential just because you start building.

Surely you would have obtained planning permission and be building based on the permissions obtained. If the planning permission is for residential then the minute you start building, you are doing it for residential purposes.

Debt_Free_Chick

My view is that it's the minute the land is classed as residential. Land is classified according to its permitted use. Was the land residential when bought? Or did you apply for change of use?

Dithering_Dad

Why would you want to invest what I assume will be the vast majority of your pension in a single asset? Surely the whole point of having a SIPP is to create a diverse portfolio of investments that include shares, cash, bonds, funds and commercial property.

However, this is a moot point because you will not be allowed to do it. The rules clearly state that you can only invest in commercial properties and I seriously doubt that you will be able to 'invest' your pension in a plot of land, some bits of sewage, gas and water pipes and a slab of concrete foundation.

I should retain your pension for what is it designed for, i.e. to pay you an income when you retire.

smurph306

It's £330k in total. At the moment £250k is in a savings account and the rest in shares. The point is, I want to buy commercial property with it. 4 years ago I purchased a plot using my SIPP for £290,000, gained planning permission and sold 4 years later for £410,000.

Before I sold it there was an option to build on it, but I decided not to, that is why I never got the answer to this question. I have drawn down 25% and now wish to do the same again but this time build on the plot.

Im not interested in tying it up in cash or any investment that I cannot access in case an oportunity comes along, because I feel I can really build on it with a commercial plot.

Debt_Free_Chick

What is the designated use classification for the land?

If residential, then - sorry - I think you're stuffed! Whether you've started to build, or not. You can only construct a dwelling on land which is designated as residential. I really think the land classification has an important bearing on the issue. Very many SIPP managers/IFAs would not appreciate this as it's a Planning issue (as well as working in pensions, I've been a Parish Council Clerk "in a previous life" - hence "I know a little!!").

Look at it this way ..... all land has a value and the value varies depending on location and use. In a rural area, commercial land probably has little value as there is little demand for businesses to be located in the countryside. Residential land has a much greater value as many want to live in an "unspoilt" area of the country.

If you have land classed as "residential" then you can build a dwelling (with the design being subject to planning laws) or you can simply sell it to a developer, who would build dwellings. If you have commercial or agricultural land, then you cannot build dwellings without having the land reclassified - applying for "change of use".

So .... my gut feel is that its the classifcation of the land that counts. You can have residential land with no building on it - but it's still residential.

dunstonh

4 years ago, the rules on property were different to what they are now.

DFC is correct but i think the trustees would allow it if there is an objective to go commercial and you intend to go down that route (unless its very obvious that there is no chance it would be classified as commercial).

The Sipp manager has discretion and would consider the case on its merits. However, any indication that you intend to try it on and go residential they will refuse and if its already in the pension and you continue they will report you to the HMRC.

Im not interested in tying it up in cash or any investment that I cannot access in case an oportunity comes along, because I feel I can really build on it with a commercial plot.

Commercial property is hardly a liquid investment. Especially in a recession where supply outstrips demand.