As we move towards a busy seminar schedule for 2020, we’d like to share with all our advisers and clients a list of common themes and questions that have been asked at a number of seminars and events across the country in 2019 where Dentons Pensions has been a key speaker. One recurring theme related to holding property within a SIPP or SSAS.

We’ve outlined these below along with our answer.

The property market

Q. Is there still demand for commercial property investment, despite the current political and economic uncertainty?

A. Yes, in Dentons’ experience that is the case and over 60% of our new business cases in 2019 have been commercial property related. Not only are advisers establishing their own SIPPs and SSAS with us for property purchase, but they are arranging these for their clients too. In a number of cases, clients would rather be paying rent into their own pension pots than to third party landlords and, where the vendor of the property is the client / client’s business, SIPP / SSAS purchase provides the client and / or their business with perhaps much needed capital in a difficult trading environment.

VAT

Q. Can a SIPP / SSAS be registered for VAT and reclaim VAT on a property’s purchase price?

A. Yes, this is a common occurrence across SIPP and SSAS, even if there are multiple parties involved in the purchase (for example the SIPP / SSAS buys the property jointly with the client’s business). If there are multiple parties involved, a VAT Partnership would be created. Clients should seek specialist VAT advice on any given transaction. Bear in mind that, should VAT be payable on the purchase price, any Stamp Duty Land Tax (SDLT) or in Scotland, Land and Buildings Transaction Tax (LBTT), liability will be based on the purchase price plus VAT.

Q. Does VAT always need to be paid on the purchase price where a property is “opted to tax” (i.e. it sits in the VAT world)?

A. No, not if a “Transfer of a Going Concern” (TOGC) applies. Again, specialist VAT advice should be sought, but broadly a TOGC can apply where a property is being acquired with an existing tenant in place with a lease, and that tenant is remaining in situ post purchase. If a TOGC applies, no VAT needs to be paid on the purchase price, but the SIPP / SSAS needs to be registered for VAT in order to claim the TOGC. Any SDLT or LBTT liability will be based on the purchase price alone and not the purchase price plus VAT, so a TOGC can save the client money in terms of SDLT.

You can read more about property and VAT in our Case Study. 

SIPP / SSAS borrowing

Q. Can SIPP / SSAS borrow from a connected party, or does the lender always need to be a commercial lender?

A. Provided that borrowing takes place on demonstrably commercial terms (e.g. as confirmed by a commercial lender), then the lender can be a connected party such as the client’s business or the client as an individual and the SIPP / SSAS pays interest to the connected party instead of a commercial lender. This can also have the added advantage of speeding-up the whole property purchase process compared to a commercial lender’s involvement.

Q. Can SIPP / SSAS borrow in excess of 50% of its net asset value (minus any pre-existing borrowing) in order to cover a short term VAT liability?

A. No, the 50% maximum is an absolute figure that cannot be breached. If funding of a property purchase is very tight, the transaction may require further thought – such as joint / part purchase by SIPP / SSAS initially.

You can read more about joint / staggered purchase in our Case Study. 

Where does SSAS fit in financial planning?

The rules around commercial property purchase are identical across SIPP and SSAS, as are the borrowing rules. However, SSAS can offer additional benefits over SIPP and many advisers are establishing SSAS for their clients for the first times in their careers. For inter-generational tax planning, a SSAS offers unrivalled benefits, including the ability to more easily create liquidity for retiring / leaving members and passing assets down through the generations.

A full outline of the similarities and differences between SIPP and SSAS can be found here.

Where can I get more help?

Dentons has a nationwide Regional Sales team and can offer face to face support for advisers and their clients. We are more than happy to join advisers at joint meetings with clients to provide factual information on the technicalities of any aspect of SIPP and SSAS.

We carry out robust due diligence on any proposed investment (including commercial properties) free of charge and without obligation and we are happy to help with any enquiry an adviser puts to us for consideration: view our Regional contacts.

We look forward to hearing from you!