Meanwhile the solicitor provides a report on the property title and any existing lease to ensure that it’s ‘clean’ - there are no incumbencies, such as securities already against the title - valid (the description matches the valuation report and title plan) and marketable, in that the property would be re-sellable if needed.
There is an additional stage in the process if a bank loan is used towards the purchase.
In these situations, the Sipp provider sends the bank an instruction letter, trust deed and rules, the completed property questionnaire and the provider’s property management agreement.
The bank agrees the loan and security on the terms negotiated and provides an account opening form to be signed by the provider.
Once all that has been completed the relevant information is sent to the solicitor so that the transaction can begin moving to completion.
When the solicitor has reviewed the survey they will provide a report for the provider’s chosen insurer, which will then give a quote for the client to approve.
It is vital to make sure that the property is properly insured.
Some Sipp providers have block cover with a preferred insurer, which can mean a more competitive rate and a quicker process.
Sealing the agreement
When the completion and settlement date is confirmed the process is left in the hands of the provider, which will put the relevant agreements in place before instructing completion and releasing the pension funds for settlement.
The provider will then get the insurance cover, rental payment standing order and loan repayments up and running.
Opportunities and challenges
For clients who own a business, the primary advantage of holding business premises in a Sipp is access to a readily available and legitimate source of funding, utilising their firm’s most valuable asset.
The tax benefits and the investment potential may also appeal to clients in this situation.
For instance, rental payments to the Sipp are free from income tax and there’s a CGT exemption for any capital gains made within the Sipp, while from an investment perspective commercial property offers yields that are typically higher than dividends on investments.
In addition, once a property is placed in a Sipp the ownership effectively passes to the pension and the premises are leased back to the business, meaning that any rent paid would then go into the pension rather than to a third-party landlord.
Both advisers and clients can, for various reasons, be reluctant to get involved in this area of the Sipp market, with perceived complexities being one of the biggest causes of nervousness.
Advisers may be particularly concerned about potential complexities if they are not already familiar with property transactions.
