SIPPOct 3 2019

Advisers divided about holding property in Sipps

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Advisers divided about holding property in Sipps

Advisers have mixed views about holding commercial property in self-invested personal pensions with some raising concerns that the asset is only suitable for a small number of retirees.

While some advisers believe that holding property in Sipps has many advantages such as rent being paid directly into a pension, others are more sceptical and believe this type of asset is only suitable for a minority of individuals.

A survey from provider @Sipp, published this week (September 30), found that only 3 per cent of small and medium enterprise owners would consider holding business premises in a Sipp.

This was partly due to low awareness of this type of retirement solution as well as a lack of understanding as to what is actually involved in the process.

Adam Smith from the Financial Advice Centre agreed that low awareness was an issue among business owners.

He said: "Most people have no idea you can do it. It's always been me bringing the subject up rather than the client coming to me about it."

Out of 750 respondents to the survey, eight in 10 had never even considered using their pension savings as a source of business funding.

Those who had used their pension savings for funding said financial advice had been an important factor for them with almost three in 10 having been prompted to do so by a financial adviser and another 23 per cent having been advised by an accountant.

But Tom Selby, senior analyst at AJ Bell said it was not surprising that awareness of this option was low as it would only be suitable for a small number of people.

Mr Selby said: “Even where someone sees an adviser it is probably only going to be the right solution in a relatively small set of circumstances. 

“If you consider the average fund size in the survey is less than £200,000, the average commercial property will probably be too expensive to buy with most people’s pensions.”

He also warned that people must be aware of the risks that come with holding property in a Sipp.

Mr Selby said: “If you put a commercial property in a Sipp and your business gets into difficulty and stops paying rent, for example, your pension will be hit too.”

Ivor Harper, director at advice firm Park Financial Limited, agreed that often property assets come with many risks, such as the threat of little diversification and costs.

Mr Harper said: “Outside of people that have a property in their own business and want the pension to own that property, I would struggle to find much merit in using directly held property for your Sipp.

“Property sales can take a long time, particularly if the property market is depressed. This is okay if you are a long way from retirement but not if you are approaching it.

“Also a direct property is likely to cost a significant sum so unless your fund is large it simply may not be practical.”

But some advisers see property as a good asset to hold in a Sipp.

Martin Tilley, pensions director at Hurley Partners, said the vast majority of advisers were receptive to the idea and would always hold the option as one within their solutions portfolios.

Mr Tilley said: “Previous difficulties with dealing with providers and the timescales/admin/conditions imposed – such as selected solicitors, insurers and property management can sometimes put advisers off.

“However, with a well-chosen Sipp provider, the fears about a slow, inaccurate and controlling provider are no longer applicable.

"A switched-on Sipp provider should be able to turn around a property purchase in a timescale no longer than it takes for the company to acquire the property.”

He also claimed that high charges should not put people off from looking into this solution.

Mr Tilley said: “There is a competitive marketplace amongst Sipp providers and the better ones now have slick operations able to turn around the more straightforward cases in 5-6 weeks for circa £1,000 plus VAT including a lease.”

Despite this, he agreed this solution was not for everyone as it could trigger tax bills.

He added: “Disposal by the company to the pension is a taxable event triggering a capital gain and some directors also don’t like the thought that they no longer own the property thinking that the pension provider will impose conditions upon them which they’d not face as owners.

“It’s true that whilst any provider will insist upon arm’s length occupancy terms being applied, they should be no more conditional than any third party landlord, with the added advantage of the rent being paid directly into the directors pension.”

amy.austin@ft.com

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