Lisa Webster: SIPP property questions remain

When SIPPs were in their infancy they were largely a niche product reserved for the most affluent, small business owners and entrepreneurs. A common reason for establishing a SIPP, rather than taking out an insured pension policy, would have been to invest in commercial property. These days the use of SIPPs is far more mainstream with a huge range of investment options, but property purchase remains an important option and is still widely used. Although a SIPP (or SSAS) can purchase property purely as an investment for the benefit of the pension fund and let it to an unconnected tenant(s), it is more common for premises to be tenanted by a company connected to the SIPP member. When this happens it is crucial that transactions are carried out on an “arm’s length” commercial basis as failure to do so can result in unauthorised payment charges – which can be significant. Usually this means independent valuations are needed to demonstrate the purchase price and agree the level of rent. These requirements are not just a one-off - rather commerciality must be demonstrated on an ongoing basis - so every time there is a rent review and critical if a rent holiday is to be agreed. For those in capped drawdown a valuation will also be needed for the triennial reviews (annually post 75) – although it may not be necessary for this to be the full “red book” valuation every time. So what does all this mean in lockdown? Many small businesses have not been able to operate for over two months now, and could have a long wait before anything resembling business as usual returns. Where such businesses are tenants of unrelated landlords then rent reductions or holidays may well be negotiated – after all the landlord isn’t exactly going to have a queue of new potential tenants lined up any time soon. For those businesses whose landlord is their own SIPP such a deal, like all other transactions, would usually need to be evidenced as being commercial. But surveyors have also been shut down by the virus outbreak, so getting such evidence has been nigh on impossible. Thankfully HMRC have been quick to act and in its newsletter of 26 March it confirmed the requirements for evidence are relaxed for three months – with a review due to be posted in the newsletter due at the end of June. Hopefully this relaxation will be extended as it is clear that it will be some time before normal conditions resume. What will also be interesting to see is how flexible HMRC will allow providers to be when it comes to negotiating repayments once the rent holidays are over. Lisa Webster, senior technical consultant at AJ Bell

Lisa Webster: SIPP property questions remain

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