Investing in my own company using SIPP or SSAS?

zagfles

The important thing to remember is that you or your business must not benefit from the SIPP - you cannot take the benefits from a pension (either directly or indirectly) until you retire and go into drawdown/buy an annuity. Otherwise it's basically tax evasion since you'd be getting tax relief on the SIPP and taking benefits before you're entitled.

What this means is that if you did buy commercial premises with your SIPP, your business would have to pay a market rent to the SIPP and the relationship must be one of commercial entities doing business with each other.

Diverse_Synergy

Yep, I would keep the SIPP ringfenced and only charge market rates etc - I'm not looking to dodge paying my fair way. I just want to make my pension benefit my own company as much as is legally allowed - hence my being so keen to be sent a link to the actual "rules" involved.

I still find it a bit bonkers though that the law allows me to invest all of my pension pot into competing large businesses (as listed on the stock market) for them to take all the benefit with relatively few restrictions involved. Yet to invest in my own very small company for the benefit, there are so many hurdles and hoops to overcome and jump through.

Does this not strike anyone else as a little obtuse?

Mattygroves2

I don't think there is a single rulebook although tax legislation and HMRC set out what is possible in a SIPP. However, each SIPP provider will have their own rules about what they will allow as they don't all have to offer all the options. For example HL (and III and others) all offer SIPPs but they are based around stocks, shares, unit trusts and investment trusts and doubt they can cope with commercial property. So you need to find a provider who will do what you want and then start talking to them.

Remember you SIPP is the thing that will provide income in retirement so you need to be sure you are diversified otherwise you are exposing yourself to problems in the commercial property sector. What happens if when you get to retirement you find it impossible to rent your premises out or can only get a very low rent ? Putting all your retirement funds into commercial property is risky even if you are then renting to your own company and you need safeguards in case your company runs into problems. You really need a mix of different exposures.

Mattygroves2

Diverse_Synergy wrote: »

I still find it a bit bonkers though that the law allows me to invest all of my pension pot into competing large businesses (as listed on the stock market) for them to take all the benefit with relatively few restrictions involved. Yet to invest in my own very small company for the benefit, there are so many hurdles and hoops to overcome.

Does this not strike anyone else as a little obtuse?

No - 20% of what is in your SIPP will be provided by the taxman so why should you be allowed to get that out tax free which you would be able to do if you used the funds to buy your own shares.

You will get tax relief on your share holding (no IHT) when you die though so there are some advantages to holding unquoted shares rather than quoted ones.

RickyC_IFSWP

Diverse_Synergy wrote: »

I've tried googling a few things on SIPPs, which is useful for ad hoc advice and bits and pieces about specific rules, but I haven't ever come across the entire "rulebook" or whatever official documentation it is that applies to the whole of pensions - which is really what I am after, because some of my ideas involve several different areas.

How does it work with pensions rules by the way? Is it a matter of statute, or is there a 'pensions body' that issues the official regulations? In basic terms, which organisation do I email to ask for a copy of the "rulebook" which I can refer to at my leisure? For instance is it HMRC? Or the Government?

Matty: For a worked example of the type of scenario I am thinking of. Say I have £50,000 in a pension pot to invest. I set up a SIPP and transfer the £50k into it. I then use say £40k to by a very small commercial property (don't need much just for me) - the remaining £10k invested in other shares, being careful not to invest in any of my competitors!

If I set up a workplace style pension scheme, with me as the trustee of the scheme and me as the sole scheme member (assuming this is allowed - this is why I need that "rulebook"!!). I then invest into the SIPP with my monthly salary and contributions from the company. Say after 5 years I have built up another £50k in the scheme - I could then expand the business by purchasing another corporate property with the SIPP portfolio could I not? And so on and so forth throughout the operations of the business.

Then on retirement, I would have several options to divest my funds back out. I could sell the business, but keep the assets held by my SIPP (effectively as a corporate landlord to the new business owner) and live off the rental income. Sell the assets and buy an annuity etc etc.

The point is though, I would have used my pension assets to support my business throughout my working life - rather than just having it invested in other listed companies through a managed pension fund, ironically some of whom could be direct or indirect competitors to my own business!!

This is all just thinking out loud, and it might not be possible (or not advisable) - but hopefully this clarifies my thinking a bit though.

You appear to have it all figured out already. :beer:

SIPP providers who cater for commercial property will have documents to cover off the rules. What you mentioned in your post seems reasonable and doable, albeit as already mentioned, risky due to lack of diversification. The commercial property is just another type of investment and would sit in a nice tax-free environment. Not sure if it's already been mentioned, but your SIPP can borrow up to 50% of the fund value... so you can actually buy a larger commercial premise if you want.

zagfles

Diverse_Synergy wrote: »

Yep, I would keep the SIPP ringfenced and only charge market rates etc - I'm not looking to dodge paying my fair way. I just want to make my pension benefit my own company as much as is legally allowed - hence my being so keen to be sent a link to the actual "rules" involved.

I still find it a bit bonkers though that the law allows me to invest all of my pension pot into competing large businesses (as listed on the stock market) for them to take all the benefit with relatively few restrictions involved. Yet to invest in my own very small company for the benefit, there are so many hurdles and hoops to overcome and jump through.

Does this not strike anyone else as a little obtuse?

Well, the govt originally intended to allow residential property in a SIPP, but backtracked on this following loads of clueless articles in the press about it being the "tax break of the century" etc. The articles were utter rubbish and implied people could buy holiday homes, or even their own homes, with their SIPP without mentioning that they'd need to pay market rents, that the SIPP would have to evict them if they didn't pay the rent and fell into arrears etc.

It wasn't the principle of residential property in a SIPP that was the problem, it's the lack of understanding about the relationship between the SIPP and the owner that was. If even financial journalists didn't get this, how did they expect ordinary members of the public to.

So yes there are hoops to jump through, but that's because this sort or arrangement is open to abuse, possibly through a lack of understanding rather than deliberate.

atush

Diverse_Synergy wrote: »

Yep, I would keep the SIPP ringfenced and only charge market rates etc - I'm not looking to dodge paying my fair way. I just want to make my pension benefit my own company as much as is legally allowed - hence my being so keen to be sent a link to the actual "rules" involved.

I still find it a bit bonkers though that the law allows me to invest all of my pension pot into competing large businesses (as listed on the stock market) for them to take all the benefit with relatively few restrictions involved. Yet to invest in my own very small company for the benefit, there are so many hurdles and hoops to overcome and jump through.

Does this not strike anyone else as a little obtuse?

Not that I want to bring up unhappy thoughts, but there are salutary lessons to be learned in investing all your money in your business (ie all your eggs in one basket), esp pensions which are ring fenced from liability/personal and professional.


In t he case of some who invested both their income/job with their pension (see Maxwell and more importantly Enron) should your business fall into difficulty much less bankruptcy you'd be out of a job/income, lose your capital in the business and own a commercial property now vacant with no income in your pension.

While unlikely to happen it is well within the realms of possibility.

of course, if you have a spouse holding title to all your other assets (from home to savings/investments) that could mitigate some risk.

Diverse_Synergy

Ah, the risk averse pensions crowd! You have to speculate to accumulate and all that...

But you all make a fair point, my numbers plucked out of the air were a bit ridiculous - I would probably diversify with something like say 25% in the business, 75% in other investments. Transferring key assets to my spouse is a good suggestion to mitigate my financial exposure too.

Cheers for all the comments everyone, much appreciated. I think what is clear is that I'll need an accredited pensions company at some point, as this isn't something I can just go ahead and set up myself quite as 'gung ho' as I thought I could!

atush

I am not risk averse at all. I have flown by the seat of my pants on many occasions. Incl moving to 2 foreign countries w/o guarantees. I have speculated and accumulated. But I have also learned about my (and other people's) mistakes.

but I never put all my money in one place/under one fortune (ie your company's) and the fact you dont realise the risk here and pooh pooh this is a concern you are investing above your risk profile.

Diverse_Synergy

errrm, that was meant to be a joke.

I just said I was planning to diversify more like 25/75 - I even thanked you specifically for your suggestion.

Sorry if you took any offence, none intended I promise.