land and building in a SIPP?

jasperM_2

I have some land that I would like to build 3 properties on. If i transfer the ownership of the land to my SIPP, can the SIPP invest in the land to build property, by e.g. selling some of the shares it owns to generate cash that it can pay builders, pay for materials etc, ahead of selling the properties and the proceeds of sale returning to the SIPP?

atush

Not if it is residential property.

xylophone

http://www.moneymarketing.co.uk/sipp-investors-get-creative/1021182.article

'However, they couldn’t start building residential property on it and this is one of the tricky areas for Sipps.”

thenudeone

As long as it's not residential property, it is technically doable. It's also possible for a SIPP to borrow money on the strength of an asset it owns (eg: land).

Whether it makes financial sense in the light of the charges a SIPP provider would make for this sort of bespoke transaction is a different matter.

System

I believe a SIPP can invest in a property company representing up to a 10% residential component, as long as the SIPP owner himself cannot directly benefit ?

mania112

Just to be clear - the land can be owned by the SIPP, but once a move to build residential property begins, it is no longer allowed.

There are caveats where 3 or more residential properties are owned by the SIPP AND the residential properties make up less than 10% of the SIPP's holdings.

By SIPP's holdings I think we're really talking about the commercial business which has its assets in the SIPP.

thenudeone

For residential property, there is an additional criteria, in additional to the 10% maximum, which is that the value of properties in the "genuinely diverse commercial vehicle" in which the SIPP invests must be at least £1m.

http://www.mwpensions.co.uk/handouts/residential%20property.pdf

Aegis

This is a very specific technical question, and some of the answers so far conflict with my understanding of the registered pension scheme manual (RPSM) issued by HMRC to cover almost all eventualities. Relevant sections are RPSM07109060, which defines residential property as a building or structure "suitable for use as a dwelling" and the land connected to any such structure which is not used for another purpose (e.g. agricultural land), and RPSM07109090, which states that "Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling".

This seems fairly conclusive: you can buy land within a pension and convert it into residential property. The caveat is that the building must not become suitable for use as a dwelling while owned by the scheme, so the property must be sold pre-completion. Something as simple as leaving the water supply disconnected should suffice, as it isn't possible to acquire a certificate of habitation without running water.

Granted, I've never actually recommended that a client do this before, but I am confident that I have interpreted the manual correctly.

Of course, it would also be necessary to ensure that there are no other risks regarding the pension scheme's taxation or borrowings to finance the construction, and it would likely be very difficult to find a modern SIPP which would allow this type of activity. You'd also need to be very careful that the SIPP is not deemed to have carried on a trade by purchasing, developing and selling on the assets, as the profits could become taxable if this is the case.

princeofpounds

Aegis - really interesting, thanks.

It actually make a lot of common sense to me, that approach. Development of residential property is a commercial activity just as much as being a commercial landlord.

Not that HMRC always have common sense!

PaulCooper

The advice Aegis gave above is exactly the advice I had from my SIPP provider when I asked the same question, it was about 4 years ago, but don't think things have changed
Paul