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									                                 TECHNICAL BRIEFING NOTE


  Emergency Budget, SIPP and Commercial and Agricultural
                        Property

The Emergency Budget provides an opportunity to review the pension funding of
those clients who own commercial or agricultural property.

Those most in need of a review are clients that have not been restricted by the
anti-forestalling provisions (broadly where relevant income in this and the
previous two tax years is less than £130,000) as they only have until 5 April 2011
to take advantage of the current Annual Allowance of £255,000. However, they
do still have to meet HMRC’s other conditions to be eligible for tax relief on the
contribution.

A high income individual currently subject to the anti-forestalling provisions will
from 6 April 2011 be able to make contributions up to the reduced level of the
Annual Allowance, expected to be in the region of £30,000 to £45,000. This
reopens opportunities to hold property in a SIPP, which would have been severely
restricted under the previous Government’s proposals to remove higher rate tax
relief on pension contributions once income reached £180,000.

Apart from the benefits of holding commercial property within a SIPP (see below)
there may be other benefits for the client depending on the way the property is
transferred to the SIPP. Transactions can potentially be arranged in a way that
releases money locked in a pension fund or in commercial or agricultural property
back to the client’s business.

The present state of the property market may also make it a good time to
consider transferring a property to a SIPP, as it can potentially crystallise capital
gains at a time when property values are sufficiently low to avoid a gain arising.

BENEFITS FROM HOLDING PROPERTY IN A SIPP

The benefits of holding a client’s business property or agricultural land in a SIPP
are:

* Rent paid to a SIPP is an allowable expense and accumulates free from tax;

* No capital gains tax to pay when property is sold from a SIPP (but there may be
a charge when transferring the property into the SIPP).

* If your client dies before starting to take benefits or reaching age 77
beneficiaries can normally receive the sale proceeds free of inheritance tax
(except possibly where held in a Protected Rights fund).

This note is for use by Financial Advisers only. It is not intended for onward transmission to a
  private customer and should not be relied upon by any other person. Merchant Investors
accepts no liability for any action taken or not taken by any individual or firm as a result of the
  contents of this material. Whilst we have made every effort to ensure the accuracy of this
material we cannot accept responsibility for any consequences (financial or otherwise) arising
                                        from relying on it.
There are potentially other benefits for your client depending on the way the
transfer of the property is structured:

* Tax efficient servicing of a loan to the fund that is used to purchase property
from the employer;

* Release money held in existing pension schemes and policies to the client’s
business;

* Release money locked into a property back to the client’s business;

* Reduce liability to Corporation Tax, or an individual’s Income Tax as
appropriate, by making in specie contributions.

* Eliminate tax at the highest rates by making contributions of an appropriate
amount.

* Crystallise any capital gains on an existing property whilst gain is low (or
possibly negative) due to lower property values

Please note that tax treatment depends on the individual circumstances of each
case and may be subject to change in the future.

INDIVIDUALS NOT SUBJECT TO ANTI-FORESTALLING PROVISIONS

Property can be transferred to a client’s SIPP as an in specie contribution subject
to following straightforward HMRC requirements. If there are no existing assets a
small cash contribution is needed to meet initial expenses, our charges and any
initial commission you agree with your client. To be eligible for tax relief all of
HMRC’s requirements must be met, including being within the Annual Allowance.

Who can make an in specie contribution depends on whether the property is
owned by individuals personally or by their company. Where a client runs his
business through a company the employer can make an in specie contribution,
and it will count towards the individual’s Annual Allowance. However an in specie
contribution by the employer is not included for determining whether the anti-
forestalling rules apply, although care should be taken to ensure such
contributions are not swept up with any of the income that counts for that
purpose e.g. by sacrificing salary. Tax relief to a company is subject to the
contribution being wholly and exclusively for the purposes of the employer’s trade
or profession.

The 2010/11 tax year will be the last in which a substantial contribution can be
made by or for an individual who is not subject to the anti-forestalling rules
although further in specie contributions can be made in later tax years subject to
the reduced Annual Allowance. However in the year in which benefits are taken
the amount that can be contributed is currently unlimited, but subject to taxable
earnings to claim tax relief. It seems that this concession might be removed with
the introduction of a reduced Annual Allowance.

Care must be taken to ensure that a contribution intended to take advantage of
the Annual Allowance of £255,000 falls into an Input Period that ends in the
2010/11 tax year.

This note is for use by Financial Advisers only. It is not intended for onward transmission to a
  private customer and should not be relied upon by any other person. Merchant Investors
accepts no liability for any action taken or not taken by any individual or firm as a result of the
  contents of this material. Whilst we have made every effort to ensure the accuracy of this
material we cannot accept responsibility for any consequences (financial or otherwise) arising
                                        from relying on it.
An in specie contribution of property can be combined with a part purchase, by
consolidating funds from other schemes, pooling funds with those of other
individuals (subject to meeting our criteria) and by borrowing to facilitate the
purchase.

Consolidating Funds

Pension funds held in other registered pension schemes can be transferred to a
SIPP. Transfers between schemes are not affected by the anti-forestalling rules or
proposed reduction in the Annual Allowance as these are not contributions.

If funds are held in a Section 32 buy out bond, or say a one man executive
pension scheme, set up prior to 6 April 2006 it is likely that there will be scheme
specific protection in the form of protected tax free cash of greater than 25%
and/or a protected pension age. Normally that protection would be lost on a
transfer to a SIPP, which would often prevent those funds being put towards a
property purchase. However Merchant Investors can arrange the transfer of those
funds to a Merchant Investors S32 policy, usually maintaining scheme specific
protection, and combine those funds with those of the SIPP to purchase property.
Our understanding is that a pre A-day S32 is deemed to be a registered scheme
and that by transferring it is winding up so enabling the protection to be passed
to the new S32. N.B. This will not work if a transfer between S32 contracts had
already taken place after 5 April 2006.

Pooling of different individual’s funds

Individuals can pool their funds within a multi member SIPP to provide a higher
fund for the purposes of investing in property. Each can transfer in existing funds,
make contributions, or the employer may make contributions, including in specie
contributions (where applicable), on their behalf.

We would establish one common fund to which all transfers and contributions are
allocated. The claim of each individual on the fund will depend on how much they
transfer or contribute and the value of the fund at the time. Alternatively we can
hold the property over more than one fund if required.

See our paper Multiple Member at a Glance

Shared ownership

Not everyone with a stake in the property may wish to hold it within a SIPP. The
SIPP may share ownership of a property with an individual who will own their
share personally or with a company owned by the member. We can do this
provided that everyone with a stake in the property is part of a cohesive group
with a common investment objective. The respective shares of the property are
owned as tenants in common, in a similar way that a co-habiting couple may
choose to own their respective shares of their house.

Where a property is VAT registered Merchant Investors and the co-owner must be
registered as a ‘partnership’ for VAT purposes and we arrange for this to be done
on your client’s behalf.



This note is for use by Financial Advisers only. It is not intended for onward transmission to a
  private customer and should not be relied upon by any other person. Merchant Investors
accepts no liability for any action taken or not taken by any individual or firm as a result of the
  contents of this material. Whilst we have made every effort to ensure the accuracy of this
material we cannot accept responsibility for any consequences (financial or otherwise) arising
                                        from relying on it.
We believe that sharing ownership of a property with a person outside of the
SIPP, who may be the SIPP member, will be a very useful device where a reduced
Annual Allowance restricts what can be contributed or contributions are currently
restricted by the anti-forestalling rules.

See our paper Shared Ownership at a Glance

INDIVIDUALS SUBJECT TO ANTI-FORESTALLING PROVISIONS

Under a reduced Annual Allowance and in the absence of substantial existing
funds in a SIPP there are likely to be insufficient funds for an outright property
acquisition. However the transfer of a property may be phased over a number of
years.

Higher income individuals (broadly those with income over £130,000) subject to
the anti-forestalling provisions can now plan to make in specie pension
contributions in tax years after 2010/11.

Contributions in future tax years can only be made up to the reduced amount of
Annual Allowance. It might be possible to adjust the Input Periods so that a single
in specie contribution is spread over two tax years’ Annual Allowance, although
unused Annual Allowance might be quite low for 2010/11. The Input Period
determines in which tax year a contribution is treated as paid for Annual
Allowance purposes.

Provided we can share the ownership of the property with an individual personally
or the member’s company, and the individual or company is eligible to make
contributions, a series of in specie contributions can be made until the whole of
the property is transferred to the SIPP. After the initial acquisition with its full title
investigation subsequent in specie contributions can be made quite simply and
with less formalities. Subsequent in specie contributions can be made as the
individual’s circumstances and Annual Allowance permit.

Where an individual is subject to capital gains tax on the transfer of property to a
SIPP a phased contribution may enable that individual to maximise use of their
CGT annual exemption, although if the value of the property rises so will the
potential CGT liability.

OTHER REASONS TO USE MERCHANT INVESTORS OneSIPP

VAT OPTION

Where a property purchase is subject to VAT it is necessary to finance the VAT
only to reclaim it three months later. This can use part of the longer term
authorised borrowing of 50% net asset value for a very short term purpose. This
is likely to become more of an issue with the increase in VAT to 20% from
January 2011.

Merchant Investors can normally separate out the VAT reclaim from the assets of
the SIPP, so that any borrowing does not need to include the VAT and can be fully
utilised for the longer term interests of the fund. There is a charge levied for this
service.


This note is for use by Financial Advisers only. It is not intended for onward transmission to a
  private customer and should not be relied upon by any other person. Merchant Investors
accepts no liability for any action taken or not taken by any individual or firm as a result of the
  contents of this material. Whilst we have made every effort to ensure the accuracy of this
material we cannot accept responsibility for any consequences (financial or otherwise) arising
                                        from relying on it.
OUR PROPERTY TEAM

We have a dedicated Property Team offering both a knowledgeable and efficient
service for the acquisition and administration of commercial properties as an
asset to be held within a pension fund. They will help guide you and your client
through the process.

Where the client is the only tenant and there is no shared ownership we can
usually avoid the cost of appointing a managing agent.

We will consider most types of UK commercial property as an investment of a
pension fund, including land used exclusively for commercial agricultural purposes
and forestry. However we will not accept property that would be classed as
taxable property by HMRC e.g. residential property. Neither will we accept
fixtures or fittings related to a business or business goodwill.



More information on holding commercial and agricultural property as an asset of
one or more Merchant Investors pension arrangements is to be found in our
Commercial property Technical Guide. or suite of commercial property literature.
More information on Anti-forestalling can be found in our Technical Bulletin
Emergency Budget 2010 and pensions summary and on the terms of Merchant
Investors OneSIPP in OneSIPP at a Glance



30 July 2010

Prepared by the Technical Team at Merchant Investors

Merchant Investors
St Bartholemew’s House
Lewins Mead
Bristol
BS1 2NH

www.merchant-investors.co.uk




This note is for use by Financial Advisers only. It is not intended for onward transmission to a
  private customer and should not be relied upon by any other person. Merchant Investors
accepts no liability for any action taken or not taken by any individual or firm as a result of the
  contents of this material. Whilst we have made every effort to ensure the accuracy of this
material we cannot accept responsibility for any consequences (financial or otherwise) arising
                                        from relying on it.

								
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