PensionsAug 10 2020

Planning law changes present opportunity for pensions

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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.

“It is impossible for advisers and trustees to police all clients and even the most robust due diligence may not unearth that the client has gone ahead and made their own decisions.”

It is very important for trustees and advisers to be kept informed throughout any processes, especially at a time when purchasing property is so popular, said Nathan Bridgeman, director at Obsidian.

Mr Bridgeman said: “We have received a lot of enquiries from our existing Ssas members and their advisers who hold commercial property as well as property professionals looking at buying vacant or distressed properties at a discount and adding to their portfolio.

“Whilst we welcome the ‘New deal for Britain’ as it clearly presents opportunities for our Ssas members that hold commercial property we do urge caution. Whilst the message from the government is “build build build” or more likely “convert convert convert” the need for working closely with a professional trustee who really understands property has never been greater. 

“There are penal tax charges for falling foul of the legislation but clearly these proposals are going to be much welcomed by landlords and tenants facing difficulties.”

Ssas popularity    

Ssas have grown in popularity throughout the Covid-19 crisis due to their ability to hold commercial property and its unique loanback feature.

Whitehall Group said Ssas registrations in the first 10 days of April alone were almost eight times higher than figures reported for January as more people became aware of the loanback facility.

At the time, Richard Mattison, director at Whitehall Group, said: “Ssas can be used in different ways to work with businesses, and on the back of lockdown we have witnessed a spike in activity.

“People who have got properties or assets in their Ssas which they can use as security are turning to loans to provide capital to the company. With borrowing rates for Ssas at rock bottom, it is an attractive solution to businesses who need finance badly.

“Advisers that understand Ssas and how they work are keen on these schemes, and are approaching us looking into loanback options for their clients.”

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