Planning law changes present opportunity for pensions

Planning law changes present opportunity for pensions

Government proposals to ease property restrictions could create a range of opportunities for personal pensions but advisers have warned this comes with risks.

From September a wider range of commercial properties will be allowed to convert to residential use without the need to first seek planning permission.

While a pension is not allowed to hold residential property, it can pay for the conversion of commercial property it holds into residential, provided the property is removed from the pension before it is “habitable”.

While this makes both self-invested personal pensions (Sipps) and small self-administered schemes (Ssas’s) more interesting for potential buy to let owners, clients have been warned to seek help from advisers and scheme trustees before going ahead with any conversions to avoid unwanted charges.

Both pension wrappers are able to hold commercial property but the Sipp must be a full Sipp rather than a low-cost option.

Stuart Gibbs, chartered financial planner at Prydis, said he understood the appeal of the rule change but urged savers to engage with their adviser to understand all of the risks.

Mr Gibbs said: “Clients quite frequently ask us about residential property and how it works within pension schemes due to the popularity of buy-to-let.

“Therefore, if it is becoming easier to convert commercial property into a residential it would not surprise me to see an influx of clients wanting to do this within their pensions.

He added: “However, these rules changes make it even more important for clients to engage with both their adviser and trustee company to completely understand the options available to them and ensure they are not caught out by any tax rules.

“Advisers and trustees can point out any areas of concern and look at ways to operate within legislation so clients are far less likely to be hit with any unauthorised charges, which can be catastrophically high, than if they were to go it alone.”

Neil MacGillivray, head of technical support at James Hay, said investors should always remember to talk to their scheme administrator about any significant changes they are planning to avoid any significant tax bills.

Mr MacGillivray said: “It will probably come as no surprise that we have seen unfortunate outcomes in the past, where investors have altered properties without informing us as the scheme administrator. 

“Part of our role as scheme administrator/trustee is to ensure that the commercial property in the schemes we administer is compliant with HMRC requirements and that we facilitate the object of adding value for the benefit of the investor. 

“If, as a result of this much publicised planning rule relaxation, an investor unintentionally makes their property taxable, it would not naturally fit with that remit.”

But Julian Puddy, director at advice company Opus Business Pensions, warned clients could rack up a tax bill without their advisers or trustees knowing.

Mr Puddy said: “HMRC could come to the trustee looking to recoup tax owed by the pension scheme, but this is not necessarily fair if the client happened to go behind the trustee's back.