Lisa Webster: Is the holiday season over for SIPPs?

Whilst the travel industry is celebrating the lifting of many restrictions on overseas trips, rental holidays for commercial property in pensions are going in the other direction. It is a year now since my blog on property when I talked specifically about connected party tenants in a SIPP or SSAS. The golden rule here is that these transactions – both the purchase of the property and the ongoing payment of rent – must take place on an arm’s-length basis to ensure no unauthorised payments arise. In the wake of Covid, HMRC relaxed the rules around how this could be evidenced. This was announced in the pension schemes newsletter of March 2020, initially running until June 2020, then extended to October 2020, March 2021 then finally 30 June 2021. It is worth noting that the relaxation was of the requirement for evidence, not of the need for commerciality itself. That holiday is now over, and in its latest newsletter (June 2021) HMRC has stressed that scheme administrators are still required to ensure any payment holidays are commercial, and crucially they base all decisions on supporting evidence. This should include formal requests from connected tenants for any deferral, accompanied with evidence of hardship. The expectation is this will be verified by an independent party. With the last remaining businesses now being allowed to open up there will be no SIPP or SSAS tenants forced to keep their doors closed on an ongoing basis. (There may of course be closures due to outbreaks and staff-shortages, especially in the period up to 16 August.) So any business owners who hold their operating premises in their pensions and are not paying full rent will need to be prepared to evidence their hardship. A common issue with connected property is that the member fails to see the importance of the different rules which apply when the property belongs to their pension, as opposed to themselves – and think it isn’t a big issue if they don’t pay rent. Many business owners will put their pension way down their list of creditors and choose to pay other parties before their rent. If they had an independent landlord, you suspect the landlord would view things rather differently! It is challenging, but not impossible, for scheme administrators to take action against connected party tenants who do not pay commercial rent, especially as often the members are trustees. The relaxation on commercial evictions that has now been extended until March 2022 may also give members false confidence, again these rules only apply when rent genuinely cannot be paid and evidence is provided. HMRC is getting stricter, and although in practice evictions are hard to execute, unauthorised payment charges are somewhat easier. It’s worth noting that it is the member personally (or the sponsoring employer for SSAS) who is liable for any unauthorised payment charges, and that it is a free-standing charge that cannot be offset against any losses they may have. There would also be a scheme sanction charge deducted from the pension. Anyone looking at having their pension buy their business premises should be aware of the rules and implications for non or under payment of rent, and those that already have their premises in their pension should be mindful. Lisa Webster is senior technical consultant at AJ Bell. She is an economics graduate with over 15 years’ experience in financial services. Prior to joining AJ Bell in May 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. She is part of the AJ Bell Technical Team, responsible for providing regulatory and technical analysis to the business and outside world. Email: This email address is being protected from spambots. You need JavaScript enabled to view it. Twitter: @lisasippster

Lisa Webster: Is the holiday season over for SIPPs?

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