Commercial Premises into SIPP

[Rollin]

I own a 50% share of the building that houses my business. The expense sharing partner owns the other 50%.
Is it possible to put my 50% into my existing SIPP even if the other partner doesn't?

What costs would be involved in this and what would be the process?
There is no mortgage on the property

[Squiddly Diddly]

Legally yes, but finding a SIPP provider willing to do it might be difficult.

There are lots of hoops to jump through though.

First off, what is the value of the property?

[Rollin]

It's worth about £200000

[Squiddly Diddly]

Rollin said:

It's worth about £200000

Ta.

So your share is £100,000 on face value, but a valuation of 50% in it's own right will come in less. Say for argument's sake, £80,000.

Do you have £80,000 in pension schemes currently?

If not, how much do you have?.

If not, is your income this tax year likely to exceed £80,000?

[Rollin]

I have 14000 in a SIPP and 39000 which I can transfer from an AVC. My main pension will be NHS

[JulianPH]

It is perfectly possible to do this (and Squiddly Diddly is asking all the right questions BTW).

You will need to make an additional pension contribution to do so though.

Just to stick with round numbers, if you have £100k in your pension you can use this money to purchase your share for the property.

This means the additional contribution you make, the basic rate tax reclaim on this contribution and the balance of £53k already held with your pension(s) would be paid to you on day one in return for your share of the property (any higher rate tax relief on your contribution would come back to you via your tax return).

Using simple numbers, if you made a £40k additional pension contribution (using carry forward) then your pension would reclaim a further £10k of basic rate tax back. If this contribution was from money earned in the higher rate tax band you can claim back an additional £10k via your tax return.

Your pension would then pay you the whole £100k directly in order to acquire your share in the property.

Your business would then have to pay 50% of the commercial market value rent to your pension. In retirement you could draw this back out again as additional income.

So from a tax perspective it is very compelling.

However, there will be the normal legal costs involved in selling your directly owned share of the property to your pension and your will have the charges for holding commercial property in you pension to pay as well.

One final benefit is that your share of the property would also fall outside of your estate for IHT purposes.

[Squiddly Diddly]

As Julian intimates, it's much better for your SIPP to buy your share of the property from you.

Although in-specie contributions are possible (ie a share of the property) must SIPP providers are no keen due to HMRC involvement. Technically contributions can only be monetary, and HMRC have in the past queried the valuations supporting in-specie contributions.

So do you have £24,000 odd that you can put into the SIPP, which with the tax reclaim and the two transfers would be used to buy the property?

[Rollin]

Thanks very much for everyones input.

Regarding charges, would this process be subject to stamp duty? I'm thinking not, since it's below £150000?

Also, are the SIPP charges for holding a commercial property easy for me to estimate from info from a SIPP provider's website/quick phone call?

When the property is sold, I assume the proceeds remain in the SIPP and are then subject to the usual pension drawdown rules like any other cash in a pension fund?

[Rollin]

Squiddly Diddly said:

As Julian intimates, it's much better for your SIPP to buy your share of the property from you.

Although in-specie contributions are possible (ie a share of the property) must SIPP providers are no keen due to HMRC involvement. Technically contributions can only be monetary, and HMRC have in the past queried the valuations supporting in-specie contributions.

So do you have £24,000 odd that you can put into the SIPP, which with the tax reclaim and the two transfers would be used to buy the property?

Yes. I have to tread carefully with pension contributions though due to possible annual allowance charges.

[anonymous-user]

Out of interest, is it possible to buy the property under a deferred consideration agreement?

So OP's pension pays what it can then pays the rest of the price either on the drip or in a lump when it has it.

[Squiddly Diddly]

desolate said:

Out of interest, is it possible to buy the property under a deferred consideration agreement?

So OP's pension pays what it can then pays the rest of the price either on the drip or in a lump when it has it.

Yes and no.

The SIPP is limited to borrowing 50% of it's value and some SIPP providers aren't keen on borrowing from members.

[Squiddly Diddly]

Rollin said:

Yes. I have to tread carefully with pension contributions though due to possible annual allowance charges.

That's good. Possible then. Just need to find someone that will do it.

Where are you based, a local SIPP provider may be useful? They will assist you with annual allowances etc.

[Squiddly Diddly]

Rollin said:

Thanks very much for everyones input.

Regarding charges, would this process be subject to stamp duty? I'm thinking not, since it's below £150000?

Also, are the SIPP charges for holding a commercial property easy for me to estimate from info from a SIPP provider's website/quick phone call?

When the property is sold, I assume the proceeds remain in the SIPP and are then subject to the usual pension drawdown rules like any other cash in a pension fund?

It won't attract Stamp Duty as under the threshold.

Different SIPP providers charge differently. You will have to do the research. A cheap and cheerful SIPP won't be available with a property in it.

Yes any sale proceeds remain in the SIPP from which you can access benefits or transfer to another arrangement if preferred.

[JulianPH]

OP - If you would like to know more about property charges for a SIPP/Pension then ask on the Intelligent Money thread at the top of the finance sections.

I don't want to break any forum rules here.

Cheers

[Rollin]

Thanks all.

[JulianPH]

Rollin said:

Thanks all.

No problem from me, always happy to help.

We charge a flat £750 a year for this (which is significantly lower than any other provider), but anyone with more than £100k already invested with us gets this for free.

I don't think this is in any way advertising, just answering a question, but feel free to remove this (Mods) if it breaks any rules!

Cheers

[Squiddly Diddly]

I do despair at some SIPP providers fees.

Some of them manage to run to several pages of A4!

[JulianPH]

Squiddly Diddly said:

I do despair at some SIPP providers fees.

Some of them manage to run to several pages of A4!

So true.

We made the decision to keep things simple. People still consider us to be more expensive as we show the total cost rather than a headline price that has pages of additional costs.

I believe simple inclusive pricing makes much more sense and gives certainty, you also know the full picture in advance of making any decisions.