Pensions  

Commercial property can save your pension

  • Describe how commercial property can be used in a pension
  • List when residential property can be used
  • Describe what happens with tangible moveable property
CPD
Approx.30min
Commercial property can save your pension

The Ssas and Sipp markets have been subject to a relative amount of upheaval in recent years.

Misuse of Ssases by fraudsters has led to the introduction of regulatory controls aimed at ensuring only schemes with a legitimate purpose are established.

HMRC has been given powers to shut down schemes which are not linked to a genuine trading company and has ramped up its due diligence on new schemes attempting to register with it. 

In the pipeline we are expecting DWP regulations which will allow schemes to block transfers to occupational schemes where a genuine employment relationship can not be evidenced – something which will help prevent transfers to pseudo-Ssases where the transferring member has nothing to do with the employer sitting behind the scheme.

On the positive side, with Sipps we have seen continued massive growth in the popularity of lower-cost and platform-style Sipps.

However this has been offset by losses linked to the failure of a number of esoteric investments, often promoted by unregulated introducers who had encouraged investors to move their pensions into Sipps to invest.

With all of this attention on the peaks and troughs of these sometimes choppy waters, it has been easy to forget that one of the key foundations of the Ssas and Sipp market, direct investment in commercial property, has kept on doing its own thing.

Let us take another look at the direct commercial property investment opportunities.

How can investment in commercial property take place?

The traditional model has always been the use of pension scheme assets to purchase the premises from which the business of the scheme member(s) operates.

If the property is currently owned by a third party landlord, using pensions to purchase the property means that rent is being paid back for the benefit of the client’s retirement, rather than for the benefit of someone else.

Where the property is owned by the business, using pension funds to purchase the property from the business can offer an important injection of capital, hopefully helping the business to prosper.

Another opportunity to inject pension funds into the business involving commercial property, but not its purchase through a pension, is the use of Ssas employer loans.  

50 per cent of the value of the Ssas can be loaned back to an employer linked to the scheme provided a first charge is taken on an asset of at least the value of the loan.  

While an unencumbered commercial property owned by the business does not have to be used as security, it is a popular option.

The property remains in the ownership of the business, but indirectly enables the use of pension funds to be used towards the growth of the company.

And of course Ssases and Sipps are not restricted to investing in property owned by, or to be rented to, a business of a member.  

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. The author expects the DWP to bring in rules which will allow schemes to block transfers to occupational schemes where a genuine employment relationship can not be evidenced. True or false?

  2. Why should someone use a pension fund to buy their premises?

  3. Time shares are treated as commercial property by HMRC, true or false?

  4. Which of the following is NOT permitted as residential property?

  5. What impact does existing borrowing have on the value of a pension fund?

  6. What happens with 'tangible movable property' in a commercial property?

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  • Describe how commercial property can be used in a pension
  • List when residential property can be used
  • Describe what happens with tangible moveable property

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