Overview

A principal feature is that the Taylor Patterson SIPP and SSAS ("the Schemes") can invest in all types of property in the UK apart from most residential property. The Schemes can invest in

• Any type of commercial property.
• Agricultural land and forestry.
• Hotels and Inns.
• Hospitals, nursing and care homes.
• Student halls of residence.
• Most leisure property, e.g. golf courses, fishing rights, marinas, moorings and sports grounds.
• Development land including, subject to certain conditions, land that is to be developed for residential purposes.

This is not an exclusive list and should you be interested in acquiring a property not listed above, please consult Taylor Patterson.

Throughout this guide references to "member" also include "member trustee" where appropriate. The guide is just an outline and does not cover all scenarios or aspects of property purchase through pension schemes. Members of the Taylor Patterson SIPP and SSAS Division will be pleased to supply further information on request.

Leisure Property

Leisure property cannot be used by the member or any "connected person", unless that person pays the market rent, fee or levy that would be paid by any other person.

Residential Property

To avoid the punitive tax charges imposed by HMRC's Taxable Property Rules, the Schemes cannot invest in any property that is "suitable for use as a dwelling". This generally means all residential property and includes holiday lets, "time shares" and similar arrangements.

However, in certain circumstances residential property can be bought and held.

Job or Occupation Related Property

The property is (or is to be) occupied by a person as a condition of their employment, e.g. a matron of a care-home or a caretaker.

The property is (or is to be) occupied by the proprietor of a business run from the same premises, e.g. a shopkeeper occupying a flat that is part of the premises and leased under the same lease as the business premises.

In no circumstances can the residential property be occupied by a scheme member or any person connected to a member.

Property not suitable for use as a dwelling

Unfortunately, even if a change of use to a non-residential purpose has been granted, that is not sufficient to avoid the application of the Taxable Property Rules. All the conditions of the planning permission for change of use, e.g. building works, have to have been carried out before the property is acquired.

However, if the property despite being "residential" is no longer "suitable for use as a dwelling" it can be acquired. This would include a derelict dwelling with say part of the roof missing. Also, it may be possible to make the property not suitable for use as a dwelling. Further, guidance should be sought from Taylor Patterson before any steps are taken to acquire such a property.

In all cases Taylor Patterson will require an opinion from a chartered surveyor that the property is not suitable for use as a dwelling. That opinion should set why it is considered that the property is not suitable for use as a dwelling and if possible be supported by photographic evidence. This is to help overcome the problems that would arise should at a later date, after the property has been converted to commercial use, the Revenue challenge the view that it was not suitable for use as a dwelling at the time it was bought and the physical evidence is no longer be available because the property has been repaired and/or structurally altered.

Parts of Buildings

Different parts of the same building can of course have planning permission for different uses, "mixed use". If part of a building has planning permission for "residential use" that might result in the whole of the building being deemed for the purposes of the Taxable Property Rules as residential notwithstanding the remaining part has planning permission and is used for commercial purposes.

The Rules state that if the residential element is totally separate and has its own entrance (which can be via a communal hallway) and is not interconnected to the non- residential areas, the residential element can be treated as a separate property.

However, if the residential element is an integral part of the remainder and it is possible to pass from one to the other without having to go through common parts, the whole of the property will be deemed residential.

In the first example, part of the property would be caught by the taxable property rules and in the second example, the whole of the property.

In both cases the property could be held in a pension scheme if the "job or occupational property" rule applied. Even if this rule did not apply, it might be still possible to acquire the commercial element of the property in the first example by taking a long lease over that part rather that acquiring the whole building.

Further Guidance

Taylor Patterson should be consulted before any transaction involving residential property is embarked upon.

Purchases from, Leases to and Sales to "Connected Parties"

Property can be purchased from the member or any connected party including a company or other business provided it is a commercial "arm's length" transaction. A valuation undertaken by a member of a relevant professional body will be required to support the purchase price.

Property can be let to a business of the member or any connected party provided it is on a commercial basis under a formal lease and the rent payable is supported by an open market rental valuation undertaken by a member of a relevant professional body.

Property can also be sold or transferred in lieu of the payment of a pension commencement lump sum or lump sum death benefit due to the member or any connected party subject to the valuation requirement set out above.

In-Specie Contributions

It is possible for the member or an employer to transfer property into a scheme in lieu of a cash contribution. Please refer to Notes on Contributions

Connected Party Transactions, In-Specie Contributions and Transfers

All such transactions will be subject to stamp duty and VAT where applicable.

Purchases from connected parties and in-specie contributions are disposals for capital gains tax purposes. Such transactions will be subject to the normal due diligence applicable to any property acquisition.

Jointly Owned Property

Property can be owned jointly with the member, third parties or other Taylor Patterson pension schemes. Further guidance will be supplied by Taylor Patterson on request.

Borrowing

The trustees can borrow up to 50% of the net asset value of the scheme to assist in the financing of property purchase or development.

Borrowing can take place after the member has commenced drawing benefits.

Borrowing is not restricted to banks and other lending institutions and with the agreement of Taylor Patterson money can be borrowed from connected or third parties but it does have to be on a commercial basis under a formal agreement.

Please refer to Notes on Borrowing.

Due Diligence

Apart from obtaining the professional valuations required for connected party transactions, there are other formalities.

If a property is being purchased from an unconnected third party normally a valuation will not be required where the property has been formally marketed through a property agent. Nor will a valuation be required if the property is being purchased from a developer or builder under an appropriate commercial contract. However, if the property is a "private sale" with no professional agency involved, a valuation will be required.

For all purchases, the usual pre-contract enquiries and searches will have to be undertaken, including a desktop environmental risk report, and a report on title will be required.

The property will be registered in the individual names of the scheme trustees and Taylor Patterson Trustees Ltd must be the first named trustee on the title.

Appointment of Solicitors

Taylor Patterson has a panel of solicitors who have considerable experience in all aspects of holding property in pension schemes and normally a firm from this panel will be instructed to act on behalf of the trustees. However, with the agreement of Taylor Patterson a firm of the member's own choice can be used.

Formal instructions to the chosen solicitor will be given in writing on behalf of the trustees by Taylor Patterson and any solicitor of the member's own choice should be informed at outset that the trustees' instructions will come from Taylor Patterson.

All the costs of a purchase or development must be born by a SIPP and should not be paid by the member or any other party. The legal and other costs incurred by a SSAS, but not VAT or stamp duty, may be paid by the principal employer of the scheme in which case they can be left out of the funding calculations.

Property Insurance

Property must be fully insured at all times. The policy will be taken out in the names of the trustees and usually the premium is recovered from the tenant under the terms of the occupational lease.

Taylor Patterson has arranged a comprehensive insurance package for pension scheme property with Norwich Union Insurance at competitive rates. Please refer to Notes on Property Insurance.

With the agreement of Taylor Patterson, the member may make his own insurance arrangements provided the cover is at least to the same standard as the Norwich Union arrangement and it is effected in the names of the trustees. However, Taylor Patterson reserves the right to insist on cover being arranged under its arrangement with Norwich Union.

Property Management

One of the advantages of The Taylor Patterson SIPP is that the member can act as the property manager thus avoiding the fees levied by a property management firm appointed by the SIPP operator.

Members who are valuers, surveyors or property managers may, of course appoint their own firm as the manager property.

Please refer to Notes on Property Management.

VAT

It needs to be established early on in a transaction whether or not a property being acquired by the scheme has an option to tax attached to and, therefore, VAT will be charged by the vendor. If VAT is payable it will has to be taken into account when financing the purchase, particularly in calculating any borrowing required notwithstanding it may be reclaimed after completion.

In some cases, usually where the property is being acquired subject to an existing lease, it may be possible to treat the transaction as a "transfer of a going concern" (TOGC) in which case no VAT is paid on the purchase and it can be ignored in the calculation of the financing of the deal. However, for the transaction to be treated as a TOGC, the agreement of the vendor will be required.

In any event, where an option to tax exists it will be necessary to register the scheme for VAT if it has not been already registered. It will also be necessary to register the scheme for VAT and opt to tax a property that is not already subject to VAT if repairs or improvements are to be undertaken by the trustees and the VAT on the cost of the works reclaimed.

Where an option to tax is attached to a property, VAT will be charged on the rent for that property.

It is possible for a scheme to hold properties some of which are subject to VAT and some which are not.

Taylor Patterson does provide VAT services but the member can deal with this aspect of property management or appoint a third party to do so.