Gareth James, technical resources manager at AJ Bell, says concerns have been raised by the regulator about fractional ownership of property.
Mr James says this isn’t a reference to the fairly common practice of a group of Sipps joining together to fund a property purchase, but rather the practice of a Sipp purchasing a specific unit within a bigger property – examples of this have included storage pods, hotel rooms and parking spaces.
The FCA states in its capital adequacy policy statement 14/12: “Normally UK commercial property can be transferred between pension providers at relative ease, provided there is a purchasing party prepared to accept the asset.
“There will be instances where this is not the case. For example, where the transfer of UK commercial property cannot be registered at the Land Registry, or it would take more than 30 days to transfer the asset.
“Where a firm identifies such an asset in its schemes it should treat the asset as non-standard.”
Properties treated as non-standard assets will require an increase in the realisable capital the Sipp firm needs to hold, which could have implications on the fees charged by the operator, Martin Tilley of Dentons adds.
Following a U-turn from its initial proposals in the wake of an industry outcry, most of the more common commercial property transactions will continue to be classified as ‘standard’. This means no surcharges for the firm and should deter firms from exiting or hiking charges.
The new regime is based on the type and value of assets, says Andy Leggett, head of Sipp business development at Barnett Waddingham.
The starting point is that UK commercial property is a standard asset and therefore not subject to the capital surcharge (a top up over and above the standard calculation), he says.
However, Mr Leggett says the 30-day rule and the terminology used introduce an element of judgement and uncertainty.
Mr Leggett says: “Many Sipp operators view a portfolio of Sipps invested in UK commercial property as an attractive asset.
“Those wishing to exit the market, whether due to financial difficulty or simply as a business decision, are likely to find a choice of willing buyers.”
More generally, investing directly into a commercial property is an unregulated investment and the Sipp member must realize that they have little recourse in the event failure of the investment, says Mr Tilley.
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