Using my pension to buy my shop
Discussion
I understand that now I am 55 my pension fund can purchase the shop that I own. can anyone explain how I go about this and can I take the 25% tax free lump first.
Rent is 12K per annum so would the valuation of the property be 10x rent. My business has been established for 28 years and very secure.
I guess that once the pension owns the shop the rent will be paid to the pension fund. Can I then take a monthly amount from the fund?
Rent is 12K per annum so would the valuation of the property be 10x rent. My business has been established for 28 years and very secure.
I guess that once the pension owns the shop the rent will be paid to the pension fund. Can I then take a monthly amount from the fund?
I don't think being 55 has any relevance.
In theory, transfer funds from your pension to a SIPP - draw down your tax free, but the shop if it qualifies as a suitable property (eg there is no residential) then draw rent as income if required.
Any surplus can be invested as normal.
Will need an IFA.
In theory, transfer funds from your pension to a SIPP - draw down your tax free, but the shop if it qualifies as a suitable property (eg there is no residential) then draw rent as income if required.
Any surplus can be invested as normal.
Will need an IFA.
I would seek some financial advice but generally speaking your pension can purchase a property so long as you have a SIPP (Self-Invested Personal Pension) or a SSAS (Small Self Administered Scheme). If you don't you'll need to set one up and transfer your existing arrangements into it in order to purchase the property. The rules round the purchase are common sense really ie. Both rent and purchase price need to be at a fair market value and done on a commercial basis so as to not gain a tax advantage either way.
You'd also want to formulate a plan for the cash inflows from rent once the purchase is complete.
You'd also want to formulate a plan for the cash inflows from rent once the purchase is complete.
hunton69 said:
I understand that now I am 55 my pension fund can purchase the shop that I own. can anyone explain how I go about this and can I take the 25% tax free lump first.
Rent is 12K per annum so would the valuation of the property be 10x rent. My business has been established for 28 years and very secure.
I guess that once the pension owns the shop the rent will be paid to the pension fund. Can I then take a monthly amount from the fund?
You will need to switch your pension to a SIPP provider and your shop must not have any residential element (flat upstairs, for example).Rent is 12K per annum so would the valuation of the property be 10x rent. My business has been established for 28 years and very secure.
I guess that once the pension owns the shop the rent will be paid to the pension fund. Can I then take a monthly amount from the fund?
Being 55 has nothing to do with being able to invest your pension in commercial property.
Your SIPP provider will get a proper valuation done on your shop and has to pay proper market value.
Providing the money is available in your pension/SIPP you can always take out the tax free cash too.
The business renting the shop will pay the rent into your SIPP and you can draw this as income from your SIPP as it is paid in (this is taxable income as you draw it out unless you still have any of your 25% tax free allowance remaining, in which case you can offset this).
Before you do anything else you need to find a SIPP provider with decent fees for commercial property. Try http://www.investmentsense.co.uk/sipp-zone/sipps/ where you can click on each SIPP to see details.
This is so you can ensure the SIPP fees do not outweigh the tax benefits.
Assuming you own the shop personally, it is worth £120k and you have a pension value of £180k it works as follows;
- You check you do not have any valuable benefits with you current pension provider that you would lose if you moved away (guaranteed annuity rates, etc.) and that the new SIPP fees do not outweigh the tax benefits
- You then switch your pension to the SIPP provider having satisfied yourself of the above
- Your SIPP provider can pay you your 25% tax free cash (£40,000) and pay you a further £120,000 to buy the shop from you (you would have to pay CGT on any gain made.
- You are now sat on the cash and your SIPP owns the shop in trust for you. The rent is paid to your SIPP who will pay this to you after the deduction of the SIPP charges and any basic rate tax due.
- As the property is held by your SIPP it is now outside of your estate for IHT purposes and you can nominate beneficiaries to inherit the property
hunton69 said:
Thank you for your replies very informative.
I can confirm that it is a shop only and I purchased the shop approx. 12 years ago with a 125 year lease. I do not own the freehold will that make a difference.
Leasehold is fine providing there is a least 50 years to run (ideally 100) so you have no problem.I can confirm that it is a shop only and I purchased the shop approx. 12 years ago with a 125 year lease. I do not own the freehold will that make a difference.
You will have the same tax to pay selling it to your SIPP as if you sold it to any other buyer.
You will probably need a financial adviser to advise you on taking the benefits from your SIPP as many SIPP providers insist on this. If you can find a good priced provider who doesn't then this will save you advice fees. It is a pretty straightforward transaction.
If you have had a recent valuation, the Provider may accept this. Otherwise use a local Surveyor and advise them of your intentions. Commercial valuations can vary widely and they will act accordingly. Generally the rent / valuation will be reviewed in year 5.
You do not need to have all the money in the SIPP to buy the Property. So long as you have half of the money and sufficient previous allowances available you can buy in two quick stages, though this does add fees.
If your shop has residential land attached to it, it is still eligible for inclusion (up to planning stage).
Remember property is not a very liquid asset and all your pension may end up being in one asset class with associated risks. It may be prudent to retain the rent in the SIPP and use it for diversification investments.
There are instances where a SSAS is more suitable than a SIPP but you need Julian or PurpleMoonlight to elaborate on this.
Think of how this process will effect your balance sheet. Is there a Revaluation Reserve to be wiped out? What will happen to your net assets?
Your SIPP will insure the property but pass on the bill to you for payment. Make sure you have another broker to quote on a like-for-like basis (very important or will be rejected) and it should save you thousands. Julian knows the excellent one I use on the AM forum. Our buildings insurance went from £9,100 to £6,000 on day one, with the latter now being used as the starting point each year.
Good luck.
You do not need to have all the money in the SIPP to buy the Property. So long as you have half of the money and sufficient previous allowances available you can buy in two quick stages, though this does add fees.
If your shop has residential land attached to it, it is still eligible for inclusion (up to planning stage).
Remember property is not a very liquid asset and all your pension may end up being in one asset class with associated risks. It may be prudent to retain the rent in the SIPP and use it for diversification investments.
There are instances where a SSAS is more suitable than a SIPP but you need Julian or PurpleMoonlight to elaborate on this.
Think of how this process will effect your balance sheet. Is there a Revaluation Reserve to be wiped out? What will happen to your net assets?
Your SIPP will insure the property but pass on the bill to you for payment. Make sure you have another broker to quote on a like-for-like basis (very important or will be rejected) and it should save you thousands. Julian knows the excellent one I use on the AM forum. Our buildings insurance went from £9,100 to £6,000 on day one, with the latter now being used as the starting point each year.
Good luck.
I did this recently albeit I own the freehold and am not the tenant.
Difficult to value your property without knowing more but I don't think you'll be far out at £120k-£140K, be aware that the fees are not inconsiderable, from memory mine ended up at £5k.
My SIPP provider charges approx £500 pa to hold the property, this in addition to the annual charge even though I self manage and remit the rent each quarter.
Your Freeholder will no doubt arrange buildings insurance and invoice you accordingly, you can recover this cost from the SIPP, mine's around £300.
I had a note from James Hay my SIPP provider that the rules are changing on individuals self managing commercial properties in a SIPP so may be worth investigating further.
Difficult to value your property without knowing more but I don't think you'll be far out at £120k-£140K, be aware that the fees are not inconsiderable, from memory mine ended up at £5k.
My SIPP provider charges approx £500 pa to hold the property, this in addition to the annual charge even though I self manage and remit the rent each quarter.
Your Freeholder will no doubt arrange buildings insurance and invoice you accordingly, you can recover this cost from the SIPP, mine's around £300.
I had a note from James Hay my SIPP provider that the rules are changing on individuals self managing commercial properties in a SIPP so may be worth investigating further.
Tresco said:
I did this recently albeit I own the freehold and am not the tenant.
Difficult to value your property without knowing more but I don't think you'll be far out at £120k-£140K, be aware that the fees are not inconsiderable, from memory mine ended up at £5k.
My SIPP provider charges approx £500 pa to hold the property, this in addition to the annual charge even though I self manage and remit the rent each quarter.
Your Freeholder will no doubt arrange buildings insurance and invoice you accordingly, you can recover this cost from the SIPP, mine's around £300.
I had a note from James Hay my SIPP provider that the rules are changing on individuals self managing commercial properties in a SIPP so may be worth investigating further.
Your SIPP provider is ripping you off.Difficult to value your property without knowing more but I don't think you'll be far out at £120k-£140K, be aware that the fees are not inconsiderable, from memory mine ended up at £5k.
My SIPP provider charges approx £500 pa to hold the property, this in addition to the annual charge even though I self manage and remit the rent each quarter.
Your Freeholder will no doubt arrange buildings insurance and invoice you accordingly, you can recover this cost from the SIPP, mine's around £300.
I had a note from James Hay my SIPP provider that the rules are changing on individuals self managing commercial properties in a SIPP so may be worth investigating further.
Their rules, not HMRC's as far as I am aware.
Tresco said:
I did this recently albeit I own the freehold and am not the tenant.
Difficult to value your property without knowing more but I don't think you'll be far out at £120k-£140K, be aware that the fees are not inconsiderable, from memory mine ended up at £5k.
My SIPP provider charges approx £500 pa to hold the property, this in addition to the annual charge even though I self manage and remit the rent each quarter.
Your Freeholder will no doubt arrange buildings insurance and invoice you accordingly, you can recover this cost from the SIPP, mine's around £300.
I had a note from James Hay my SIPP provider that the rules are changing on individuals self managing commercial properties in a SIPP so may be worth investigating further.
You are right about the fees. £500 a year for a property with annual SIPP fees and then drawdown fees plus time charged fees (usually £150 an hour) for all other aspects.Difficult to value your property without knowing more but I don't think you'll be far out at £120k-£140K, be aware that the fees are not inconsiderable, from memory mine ended up at £5k.
My SIPP provider charges approx £500 pa to hold the property, this in addition to the annual charge even though I self manage and remit the rent each quarter.
Your Freeholder will no doubt arrange buildings insurance and invoice you accordingly, you can recover this cost from the SIPP, mine's around £300.
I had a note from James Hay my SIPP provider that the rules are changing on individuals self managing commercial properties in a SIPP so may be worth investigating further.
My SIPP company has a 'Bespoke SIPP' that is £550 initial and £750 a year with no other charges (including time charging) whatsoever, regardless of the number of properties/investments held and including drawdown.
You know exactly what it is going to cost and it is cheaper than any other I know of.
Rubbish, of course, if you are making monthly contributions into a low cost portfolio, but excellent in these situations.
desolate said:
PurpleMoonlight said:
Your SIPP provider is ripping you off.
Their rules, not HMRC's as far as I am aware.
Do you think the 5k was relating to other fees for transferring the property? Eg sdlt/legalTheir rules, not HMRC's as far as I am aware.
That's how I read it.
If it's 5k SIPP fees then yes - way over the top.
Jockman said:
desolate said:
PurpleMoonlight said:
Your SIPP provider is ripping you off.
Their rules, not HMRC's as far as I am aware.
Do you think the 5k was relating to other fees for transferring the property? Eg sdlt/legalTheir rules, not HMRC's as far as I am aware.
That's how I read it.
If it's 5k SIPP fees then yes - way over the top.
People with properties in SIPPs or in any old priced SIPP need to have a good look around at what is available today pricing wise. The SIPP world has changed dramatically over the last 5 years, let alone 10.
Your only guarantee is that your SIPP company will be the last to tell you about this and lose all that easy profit.
Tresco said:
Don't have those to hand but will let you know.
It's unfortunate OP that because you are the buyer and seller you pay two sets of legals.
These costs can be mitigated.It's unfortunate OP that because you are the buyer and seller you pay two sets of legals.
You may wish to agree a new lease as well prior to sale/purchase. Within reason this can put some value where you need it to be.
It can always be renegotiated down the line.
desolate said:
Tresco said:
Don't have those to hand but will let you know.
It's unfortunate OP that because you are the buyer and seller you pay two sets of legals.
These costs can be mitigated.It's unfortunate OP that because you are the buyer and seller you pay two sets of legals.
You may wish to agree a new lease as well prior to sale/purchase. Within reason this can put some value where you need it to be.
It can always be renegotiated down the line.
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