Commercial property - SIPP

[Tresco]

I'd like my SIPP to buy a lock up shop with a Flat above, the Flat is sold off on a 125yr lease and therefore has a separate long leasehold title, I own the entire Freehold.

The SIPP providers have advised that 'the SIPP would need to buy a new long leasehold of the ground floor as we could not be the freehold landlord of the whole building due to the residential element.'

Doing this would create a flying freehold for the Flat which isn't great.

The SIPP is with James Hay, before I start calling other SIPP providers I wondered if any of the pension advisers here have come across this before?

Thanks chaps.

[PurpleMoonlight]

You are being advised correctly, the SIPP cannot own the Freehold to a residential property.

Note: It can legally but the tax consequences of doing so are horrific.

Edited by PurpleMoonlight on Wednesday 30th July 09:29

[Jobbo]

You don't need to create a flying freehold. Just buy the freehold into your own name, with the SIPP taking a 99yr (or longer) lease of the commercial part at a minimal ground rent for which it pays a premium. Might need a bit of willing from the seller to assist with your structuring.

[Tresco]

Thanks for replies, the fees are high enough already for doing this so was looking to avoid additional costs in setting up separate title etc but having made some calls in the meantime this looks unavoidable.

[isleofthorns]

I'm was looking to do the same as well.... My ltd co is planning to buy a property with two flats and a shop. I was planning on selling the two flats leasehold and selling the shop/freehold to a sipp.

This looks problematic - coud I sell the shop leasehold to my sipp and retain the freehold, either separate from either flat, or retain one flat with the freehold attached?

[PurpleMoonlight]

isleofthorns said:

This looks problematic - coud I sell the shop leasehold to my sipp and retain the freehold, either separate from either flat, or retain one flat with the freehold attached?

Yes that's the way to do it.

The Ltd buys the whole lot and then sells off parts on a leasehold basis retaining the freehold.

You could actually put the commercial element in to the pension scheme as an inspecie contribution if you wanted and get corporation tax relief on it (assuming within maximum contribution limits).

[Jockman]

Suffolk Life are currently doing SIPP Commercial Property for us - they are very good in this area.

There are some SIPP Providers being closely scrutinised by HMRC at the moment, primarily from a property angle, and it is unlikely that all will survive the imminent cull.

Your SIPP can hold residential land, even with planning permission on it, but a freehold is a no-no

Edit - nor can you use your SIPP for 'trading' in property ie quick buy / sell / buy etc.

Edited by Jockman on Saturday 2nd August 12:51

[Ginge R]

The FCA has this morning clarified its position on the requirements of companies that operate SIPP.

It has raised the capital adequacy (the minimum capital that must be held) requirements to £20,000 (up from £5,000) and of note to this thread in general, it has added UK commercial property to its list of standard assets. This means SIPP providers do not have to hold additional capital.

It has also added UK commercial property (with what looks like one or two small exceptions) to physical gold bullion, NS&I, bank account deposits and units in regulated collective investment schemes to the standard assets list.

http://www.fca.org.uk/news/policy-statements/ps14-...

[Tresco]

Thanks for the light reading Ginge, I was wondering what I'd take to read on holiday..!

[Ginge R]

The evenings will fly by!