SSAS - Guide to Property Purchase and Lease
The purpose of this guide is to set out a general basis for the purchasing and leasing of property under an MW SSAS. Whilst we have tried to cover most eventualities, the complexity of property transactions is such that it is not possible to cover every possibility. Why invest in property? A SSAS allows the option of investing in property. This can be either an outright purchase or with the assistance of a commercial mortgage. The concept is simple and has all the advantages of tax free growth - no income or capital gains tax. It is vital, however, that property investment is handled with expertise, experience and understanding and is done in accordance with H M Revenue & Customs (HMRC) regulations. Acceptable Property Direct investment in property or land must be of a commercial nature. Investment directly in residential property is not allowed. Investment in residential property must be via a "genuinely diverse commercial vehicle" – basically no one investor (or anyone connected with them) can own more than 10%. See our leaflet on Residential Property for more details on what is classed as Residential Property and for information on the structures required to invest in residential property. Hotels and residential care nursing are allowable as are Guest Houses and Pubs, but special care must be taken. No SSAS member must reside on the premises as this would be classed as an ‘indirect benefit’. The business must be separate from the building as the Scheme cannot ‘trade’. Similarly, children's care homes, student halls of residence (but not flats), hospitals, hospices and even prisons are classed as commercial. Residential element of commercial property The inclusion in a commercial property of • a caretaker’s flat; or • a residential part of a property occupied by an employee as part of their employment; would not preclude the property being held as a scheme investment which is classed as “commercial”. Any such residential accommodation must be an integral or associated part of the commercial property.
Other factors to consider Properties with a history or potential for Development land and off-plan are contamination problems are unlikely to be a considered to be commercial even if suitable investment. An environmental report subsequently developed for residential use. is required prior to purchase. The property would not be deemed to be residential until a certificate of habitation is The property may be either freehold or issued. Extra care must be taken if the SSAS leasehold. But if it is the latter there must be were to make regular purchases and sales of still a considerable number of years on the developmental land or off-plan properties as lease. HMRC may construe this as trading and tax the SSAS accordingly. Care must be taken if transacting with a ‘connected party’ as this must demonstrably be Agricultural land is classed as commercial a commercial transaction at ‘arms length’. This property but must be used strictly for applies to sales to a connected party as well as agricultural purposes. Similarly forestry purchases from them. must also be commercial. No SSAS member is allowed to derive ‘indirect benefits’ from such investments, eg the usage of sporting facilities (shooting, fishing etc). 1
The legal bit Experience has taught us that a property transaction through a pension fund can be complex and is best handled by solicitors fully conversant with the procedures involved and with SSAS’s Trust Deed. We therefore strongly recommend that our solicitors be used. The solicitor’s duties include: a) Arranging the conveyance of the property; b) Drafting the lease or reviewing an existing lease; c) Agreeing the facility letter, the form of legal charge and terms and conditions with the lender if you require a mortgage d) Syndicate agreement if you are joining with others to buy a property.
VAT Where an ‘option to tax’ is in place on a property, subject to the correct procedures, the VAT payable on the purchase price of the property can be reclaimed. Following the repayment of VAT by HMRC the VAT element will be credited to your SSAS. The reclaim can take about three months to complete and you must ensure you have sufficient funds in your SSAS to pay the VAT in the first place. Subsequently VAT will be charged on the rent due on the property and on any future sale of the property. It will be necessary to arrange for completion of the VAT returns each quarter.
Stamp Duty Land Tax (SDLT) All commercial property transactions where the consideration paid (purchase price plus VAT) is in excess of £125,000 is subject to The legal owners of property will be all the SDLT. trustees. As for any form of investment The rates are as follows: transaction, this will be undertaken on the basis that the liability of Moores Williams Consideration SDLT Rate Trustees Limited is restricted to the net £0 - £150,000 Zero realisable assets of the SSAS. Over £150,000 - £250,000 1% Over £250,000 - £500,000 3% The legal fees and expenses can be paid by Over £500,000 4% your SIPP. You must ensure you have sufficient funds If you decide to abandon your property available in the SSAS to cover the payment purchase at any time you must be aware that of the SDLT. any legal fees and expenses, together with our fees, incurred to date are due and payable. You must ensure you have sufficient assets in your SSAS to cover all taxes eg Stamp Duty and fees.
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Mortgage arrangements Financing the purchase In addition to the purchase price of the The trustees are able to borrow money to property the following costs may be incurred: purchase a property where the SSAS funds are insufficient to purchase the property and • Legal fees, land registry fees, search fees pay the expenses outright. The loan will be on a normal commercial basis from a • Surveyors fees commercial lender. Whilst it is the members’ • MW property facility fees responsibility to find a lender and agree • Insurance terms, we have contacts with a number of • VAT lenders and can make arrangements for you • Stamp Duty Land Tax to meet suitable lenders. • Legal fees for arrangement or review of lease All lenders must be made aware that they are • Property management lending to trustees of a pension scheme, not • Lender’s legal fees including any to you personally. mortgage facility fees and security fees. The amount the SSAS can borrow is limited Your SSAS funds must be sufficient to cover to 50% of the net value of the fund less any at least 2/3 of the purchase price plus costs existing borrowing. (the maximum mortgage you can take out is 50% of the value of your SSAS). Example SSAS has assets worth £200,000 but has a Whilst contributions to the SSAS are not liability in the form of existing borrowing of related to earnings, tax relief on personal £50,000. contributions is limited to 100% of earnings. Contributions by the company attached to the The maximum amount which can be SSAS on behalf of an employed SSAS borrowed is (£200,000 - £50,000) x 50% = member will normally qualify for £75,000. The outstanding existing borrowing Corporation Tax relief. For each member of is £50,000 so further borrowing is limited to the SSAS total contributions paid by the £25,000. member or on their behalf to all Registered Pension Schemes of which they are a Insurance member are limited, for tax relief purposes, All property owned within an MW SSAS to the Annual Allowance (£225,000 in must be insured. There should be buildings 2007/8) insurance, including property owner’s liability cover. The insurance should also In addition to any contributions made, SSAS provide for three years loss of rent, terrorism funds can comprise transfers from other cover and, where applicable, environmental Registered Pension Schemes. Transfers can cover. The cost of insurance will be paid out take several months to complete of the SSAS funds but is usually recoverable from the tenant(s) of the property in The anticipated rental income for the accordance with the lease. There are certain property must be sufficient to meet the loan minimum levels of insurance that we require repayments (which must be on a commercial be put in place. basis) plus any other expenses, plus any margin required by the bank loaning the The insurance must be effective from the date mortgage. You should also bear in mind that of completion. We will provide you with a interest rates may subsequently rise, which quote from our insurance brokers. would increase the repayments.
In the absence of evidence that equivalent 3 insurance has been arranged we will put the property on cover from the date of
Property Management Day to day management Where a property is tenanted by the members’ business or a sole tenant, one of the members may act as the property Where the purchase is being financed with manager, liaising with Moores Williams the assistance of a mortgage the lender may Trustees Ltd as necessary. require the valuations to be carried out by In the case of multi-let properties proactive certain firms. property management will be required and a The report must be addressed to the trustees. professional property manager must be appointed. The report should include: Rent invoices • an open market capital valuation We expect all rent payments to be made by • an open market rental valuation standing order and to be in the SSAS bank • an insurance re-instatement valuation account by the due date. • an environmental report The surveyor should also make any necessary recommendations as to whether a structural Rent Reviews Rent reviews should take place at regular survey is required. intervals, normally between 3 and 5 years. The cost of the survey and any subsequent This will be detailed in the lease. The review reports can be paid from the SSAS funds. If should determine the market rent, be the purchase takes some time to complete it independent and carried out by a surveyor; their fees are payable from the SSAS funds. may be necessary to repeat the survey. Valuation reports No purchase can be completed without a RICS surveyor’s report which should be no more than 6 months old. The Lease The solicitor acting for the property purchase will also need to deal with the lease to the tenant(s) in the property. The standard lease is fully repairing and insuring which means that the tenant(s) will be responsible for the upkeep and maintenance of the property, and for paying the insurance premiums (although the insurance cover will have been arranged by the trustee). The tenant will also be responsible for paying any stamp duty on the lease and for property management fees. It should be noted that the lease must normally have a term at least equal to that of any mortgage. Repairs and Other Additional Work Under the terms of the lease minor repairs are the responsibility of the tenant If more extensive work is required, which will increase the value of the property, the responsibility rests with the landlord iethe trustees and the cost will be funded from either the SSAS funds or by way of a loan. A surveyor should be consulted prior to the commencement of any work.
MW Pensions Ltd Oaklands Park, Hooton Road, Hooton, South Wirral CH66 7NZ Tel: 0151 328 1777 Fax: 0151 328 0707 Email: admin@mwpensions.co.uk Website: www.mwpensions.co.uk Authorised and Regulated by the Financial Services Authority
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