Commercial property in SIPP

economic

Hi

I have a few questions about the possibility of transferring a commercial property I own 50% of, into my SIPP.

- The commercial property has residential flats above it, can the residential flats be transferred to a SIPP as well together with the commercial? The freehold title is as a whole (resi + commercial). I heard it is fine as long as the SIPP owner does not reside there, and i don't (whole building is let out). But the rules may have change, can someone confirm?

- Since I own 50% of it (no mortgage), is it possible to transfer part of a property (my part) to my SIPP? The other half is owned by a friend. Can I transfer it to a SIPP irrespective of what happens to the other half?

- How does the transfer itself work in terms of value? Can i simply "sell" it to the SIPP for 0 cost? As I do not want to withdraw any money from the SIPP (i am in my 30s). Or does it have to be done at market value so that the equivalent amount has to be released from the SIPP when doing the transfer?

I know this is a complex topic and there are many other implications, however if i could get the answers to the above questions, that would be a great start to then go forward from there.

thanks

annienewbie

Having previously worked for a SIPP firm specialising in commercial property, the % ownership being transferred into a SIPP isn't the issue here. The issues as I see them relate the residential element of the property as pensions are not permitted to hold residential property, though there are some exceptions.

If the residential flats are linked to the business in question, then it may be argued that these are employee related accommodations, and it is integral to business that employees reside on the premises. Good examples here are pubs with landlord accom, or 24 hr veterinary practices with nurse accom.

If you own the freehold title personally, you can transfer the leasehold commercial element into the SIPP with no issues.

The ownership of the property with your friend does cause some logistical issues, namely who will manage the allocation of the rent, as the SIPP will only be entitled to receive 50% of the full rent received. A good SIPP provider will allow you to act as property manager, and allocate the rental monies to the respective owners, but you will need to provide regular statements to the SIPP company as evidence.

In practice, the transfer to the SIPP can happen in one of two ways
1> Your pension fund purchases the 50% from you personally, which has to be at arms-length. Therefore if the value of your share is worth 100k, 100k will need to be paid from your pension to you personally. The value also needs to be evidenced by a RICS surveyor.
2> You contribute the property into the SIPP, though not many SIPP providers allow this these days.

First thing to do is speak with your SIPP firm and see what they say. They may not want the complexity of the split-ownership, but they will at least give you some of the answers.

economic

annienewbie wrote: »

Having previously worked for a SIPP firm specialising in commercial property, the % ownership being transferred into a SIPP isn't the issue here. The issues as I see them relate the residential element of the property as pensions are not permitted to hold residential property, though there are some exceptions.

If the residential flats are linked to the business in question, then it may be argued that these are employee related accommodations, and it is integral to business that employees reside on the premises. Good examples here are pubs with landlord accom, or 24 hr veterinary practices with nurse accom.

If you own the freehold title personally, you can transfer the leasehold commercial element into the SIPP with no issues.

The ownership of the property with your friend does cause some logistical issues, namely who will manage the allocation of the rent, as the SIPP will only be entitled to receive 50% of the full rent received. A good SIPP provider will allow you to act as property manager, and allocate the rental monies to the respective owners, but you will need to provide regular statements to the SIPP company as evidence.

In practice, the transfer to the SIPP can happen in one of two ways
1> Your pension fund purchases the 50% from you personally, which has to be at arms-length. Therefore if the value of your share is worth 100k, 100k will need to be paid from your pension to you personally. The value also needs to be evidenced by a RICS surveyor.
2> You contribute the property into the SIPP, though not many SIPP providers allow this these days.

First thing to do is speak with your SIPP firm and see what they say. They may not want the complexity of the split-ownership, but they will at least give you some of the answers.

Thanks this is very helpful.

Do you know which SIPP firms do allow contribution of property without transferring the equivalent value from SIPP to me? As far as i can see its just a contribution and you can make unlimited contributions to a SIPP. Of course you dont get tax relief on it but that is fine by me.

annienewbie

Each SIPP firm would be different, as HMRC undertook a review of in specie contributions. In specie is the mechanism of contributing an asset as opposed to cash into a pension scheme. This review lead many SIPP firms to stop accepting contributions of property.

On the point of "unlimited contributions", you are actually limited by the Annual Allowance, and Tapered Annual Allowance

economic

annienewbie wrote: »

Each SIPP firm would be different, as HMRC undertook a review of in specie contributions. In specie is the mechanism of contributing an asset as opposed to cash into a pension scheme. This review lead many SIPP firms to stop accepting contributions of property.

On the point of "unlimited contributions", you are actually limited by the Annual Allowance, and Tapered Annual Allowance

Annual allowance is for tax relief purposes. But in theory you can make unlimited contributions although you wont get any tax relief above the annual allowance.

redux

I imagine (but have no knowledge, unlike the other person replying) that complications from property value often being way over the annual allowance might be amongst the reasons some firms have stopped doing this.

Wouldn't it be simpler for your pension to buy the property interest from you, or is part of the problem with that that the fund you might consider using isn't big enough yet?

System

Actual in-specie contributions are largely a myth. The usual arrangement is that you have to make an actual cash contribution, but can then follow up with a smartly-timed purchase of the property by the SIPP using that cash, so the money returns full circle.
You can borrow the money for the (short) duration between the two transactions.
You need full cooperation between the SIPP, a solicitor, and the loan provider, so that each knows exactly what is planned and has all the paperwork etc ready to go. In theory it can be accomplished in days, but not with an ordinary lazy solicitor in charge, accustomed to taking months to do anything.

Another complication might be that the value exceeds your annual allowance, even if using maximum carry-forward. But you can purchase the property in annual chunks, via holding trustees while it is in split-ownership.

Very complicated, not commonly available, but do-able.
Try Suffolk Life.

economic

Clifford_Pope wrote: »

Actual in-specie contributions are largely a myth. The usual arrangement is that you have to make an actual cash contribution, but can then follow up with a smartly-timed purchase of the property by the SIPP using that cash, so the money returns full circle.
You can borrow the money for the (short) duration between the two transactions.
You need full cooperation between the SIPP, a solicitor, and the loan provider, so that each knows exactly what is planned and has all the paperwork etc ready to go. In theory it can be accomplished in days, but not with an ordinary lazy solicitor in charge, accustomed to taking months to do anything.

Another complication might be that the value exceeds your annual allowance, even if using maximum carry-forward. But you can purchase the property in annual chunks, via holding trustees while it is in split-ownership.

Very complicated, not commonly available, but do-able.
Try Suffolk Life.

I'm not sure if you mean the same thing but:

Can i not just contribute to my SIPP the value of my share of the property (since unlimited contributions are allowed although of course tax relief is only up to a certain point and only on relevant earnings) and then purchase the share of the property by the SIPP using this same cash which comes out of the SIPP again and back into my bank account?

Would this looked down upon in anyway?

economic

Bumping up so i get a reply.

thanks