Property Purchasing
Liberty SIPP – offering a unique perspective on commercial property purchase
No two SIPP property purchases are the same, neither are the circumstances in which the buyers find themselves.
This may sound self explanatory, but to look at how most SIPP companies approach property purchases you would think that they are in fact all the same, straightforward and only applicable to one SIPP member and his funds.
In the real world we all know this isn’t the case, this is why we at Liberty have developed the most flexible property purchase structure in the market.
At Liberty we seek to provide solutions rather than stick rigidly to the accepted way that a SIPP operates.
A SIPP should be easy to use and enables your clients to invest in areas that they understand – this is never more relevant then when we consider the area of commercial property purchase.
Below are examples based around purchasing a property for £150,000 and we show the many ways in which it may be possible to achieve this. We hope that this gives you food for thought, if you would like more information or would like to discuss any particular cases, we would be delighted to be of assistance.
Case Study
You are thinking of buying an office building for your limited company to trade from for £150,000. You would like to use your pension scheme to make the acquisition and for the property to form part of your investment portfolio. The open market rent has been quoted at £12,000 per annum, and professional fees for the solicitor and surveyor are approximately £3,000.
You have an existing fund of £120,000 in your SIPP and £40,000 held in a personal pension scheme with a life office.
There are several ways to fund for this investment:
Personal or Company Contribution
You can make a personal contribution of £35,000. Your earnings in that tax year would need to be at least £43,750 (the gross contribution) to be able to obtain full tax relief on the contribution.
Liberty would reclaim £8,750 which can take 6-8 weeks for your SIPP receive.
If you can wait for the tax to be reclaimed and paid to your SIPP, the contribution required would reduce to £28,000.
Alternatively, your company can make a contribution of £35,000. The tax relief would be received by the company and not the SIPP.
The SIPP receives the rent tax-free and there is no Capital Gains Tax on disposal.
Transfer to the SIPP
You can transfer your personal pension arrangement into the SIPP giving you a total fund of £160,000, leaving a small balance after purchasing costs.
The rental income can be invested out of the SIPP bank account.
Borrow
Under current pension legislation the most you can borrow is 50% of your fund. On the fund value of £120,000, the maximum the SIPP can borrow is therefore £60,000. To purchase the office, you only need to borrow £35,000.
The rental income would be used to cover the loan repayments.
Joint Purchase with another SIPP member
Your business partner also has a SIPP with Liberty with a fund value of £70,000.
You agree to jointly purchase the property in a 2:1ratio; your SIPP will buy £100,000 and cover £2,000 of the professional fees and your business partner purchase £50,000 covering £1,000 of the fees.
The rental income would be split £8,000 to your SIPP and £4,000 to your business partner’s SIPP.
Joint Purchase with a non SIPP member
You purchase the property jointly with your company.
Your company will purchase 1/3rd of the property and your SIPP will purchase 2/3rds. The professional fees will be split proportionately to the split of the property.
The method by which the company raises the capital for the acquisition doesn’t concern the SIPP.
£8,000 of the rent would be paid directly to the SIPP.
Fees
These will be tailored to fit the situation.
Please see our property guide pdf and fee schedule (pdf) for more information, or give us a ring on 01706 826511