That said there are, of course, many thousands of directors of Small and Medium sized Enterprises that are yet to see the potential advantages of buying their company premises in 2014 using their existing pension plans. Once an opportunity has been confirmed though, there are a number of relatively complex areas to be worked through and the adviser and client will need technical and practical support from an experienced SIPP or SSAS provider.
What do advisers and clients need to watch out for?
1. Types of property / land
Most types of commercial property & land are usually acceptable.
More care needs to be taken with:
- any property with a bedroom!
- pubs, hotels, etc
- care homes, nursing homes, children’s homes, student accommodation
And almost certain to be rejected:
- residential property
- residential land (the garden!)
- Bed & Breakfasts
- holiday lets / homes
- wind turbines
2. Property risks – flood, environmental, asbestos, insurance
Every property carries a certain amount of risk and Xafinity, alongside the acting solicitor, will help you with:
- flood risk checks
- environmental risk checks
- asbestos risk
- Energy Performance Certificates
- coal mining risks
- property insurance now and in future
Financial advisers should contact Xafinity for a free “pre-purchase” check to ensure that your client’s property will be acceptable in principle.
3. Financing the purchase
Financial advisers and their clients should consider the usual forms of financing a property purchase:
- transfer existing pension savings into a SIPP/SSAS
- make new company contributions
- make new member contributions
- SIPP or SSAS borrowing from a bank (maximum of 50% of net assets in SIPP/SSAS)
But you can also consider the following:
- inviting other members to join – e.g. husband / wife
- other directors
- other relatives / friends with existing pensions (SIPP only)
And if there are still not enough funds to buy the property outright, consider the part-purchase of the property, we have a number of these at Xafinity.
4) Taxes to watch out for
The dreaded tax man is likely to want a slice of the pie and advisers need to keep an eye out for:
- VAT on purchase price (must be pre-funded)
- Stamp Duty Land Tax
And remember to consider any potential Capital Gains Tax if the SIPP/SSAS is buying the property from the client company/themselves.
5) Fees, costs
Buying any property incurs fees and the SIPP/SSAS will pay charges and costs to the following:
- solicitors – for purchase and lease (if required)
- surveyor – for property & rental valuations
- environmental surveyor – if property is deemed to be “higher risk”
- risk report fees such as asbestos reports, mining reports, Energy Performance Certificate costs, etc
- SIPP provider – set up fees for administration
And of course there will be adviser fees.
Financial advisers and their clients should be realistic when discussing timescales with vendors. A new SIPP set up and property purchase will typically take around 3 months. Co-operation between the several parties is vital to a quick purchase, but every property purchase is different.
7) Trust your SIPP provider
Xafinity administers over 1,200 property investments for SIPP & SSAS clients and this grew by nearly 10% through new properties added in 2013. Financial advisers and clients need an experienced SIPP provider to guide them through the complexity of a SIPP or SSAS property purchase, so please visit our website at www.xafinitysipp.com, or call me, Jeff Steedman, directly on 07989 627767.