Self invested personal pensions
(SIPPS)
Table of contents
So, what are SIPPS anyway? SIPPS are personal pensions where an individual, professional partnership or almost any group of individuals can run their own pension investment, having complete control (within Revenue rules) of the investment for retirement. There is complete flexibility in investment decisions. If you choose this route, you'll be confronted with a range of options over what to invest in. The Inland Revenue will extend to you the tax benefits associated with pension saving provided you choose investments they approve of. This is still a grey area in many ways, but includes property (in certain forms such as commercial), pension funds offered by life insurers, unit trusts, investment trusts, direct equities, cash deposits and even futures and options. SIPPS are offered by a growing number of life insurers and stockbrokers. We have many years experience in setting up SIPPs for the purchase of commercial property and are well versed in coordinating suitable lenders and SIPP providers, as well as being able to speak from personal experience of running our own SIPP for our premises.Who are they suitable for?
Mobile executives, professionals, the self-employed and higher earners. Usually only make sense for people investing several thousand pounds a year or purchasing a property costing six figures, otherwise the charges are likely to outweigh the benefits. If you have your own business and are looking for a tax efficient way to acquire premises for that business, then a SIPP can offer many advantages.
Advantages
- Wide range of acceptable investments
- Control of retirement fund
- Administration costs reduce proportionately as premiums increase
- Other advantages as per personal pensions
- Ability to purchase property, effectively with no liability to future CGT
- Can use existing pension funds as a deposit to purchase commercial property, borrowing the balance (50% of the fund value maximum). For those with insufficient deposit monies this is often the only way to acquire the property they wish to purchase.
- If your business occupies the premises bought within the SIPP, the rental income charged by the SIPP is effectively an additional pension contribution which is fully offset against profits, with no upper limit (though the rent must be at a commercial rate).
- There is no longer a connected person rule, so you can buy and sell property between yourself and your SIPP
Disadvantages
- Limited number of providers
- Only suitable for certain individuals
- Other disadvantages as per personal pensions
- Can be expensive to establish, especially for small schemes
- For property purchase, can be time consuming and complex to set up, so using an experienced broker is essential
SIPPS and Property
There are still ways in which you can incorporate a form of residential property into your SIPP or use SIPP moneys to finance what will become a residential development.
The first is by purchasing a specialist form of leaseback property, a proven method of property investment in France since the 1960's. Edison Ford has been involved in this type of investment for many years and is contracted to France's largest and most successful leaseback provider, as well as having relationships with many other smaller leaseback specialists. Have a look at our sister company website www.efip.co.uk for more details on leaseback property.
The second way is to buy into a collective form of investment vehicle which contains residential property, either UK or overseas. You will need a pension pot of around £100k to make this cost effective and you will not be able to benefit from personal use of the properties in any way, so they must be seen purely as investments.
SIPPS are still a cost effective way of purchasing commercial property. Provided you have a suitably funded pension pot, it is possible to acquire commercial property within a SIPP, effectively allowing the property to become your pension. For many businesses, this can have tremendous tax and other advantages. However, the rules governing the amount a SIPP can borrow changed from 4/2006 so that now you can only borrow up to the equivalent of 50% of your pension fund. Assuming you had a fund of £100k, you could buy a property for £150k, ie the £100k in the fund plus £50k borrowing. However, the interesting issue is that if you already own a property, you can transfer that into a SIPP and receive tax relief on its value, which will be treated as a contribution! You can then borrow half its value. It is important therefore you seek professional advice if you are contemplating property purchase within a pension.
If you have insufficient money in your existing pensions to buy a property outright, you can still buy a percentage of the property in a SIPP and buy the rest personally or in a Limited company. We organise a number of these for clients and whilst a little complicated, can often mean the difference between being able to buy a property and not quite having enough cash to do it.
Moreover, if you own an existing commercial building and need to release equity to help with cash flow or another project, you can turn 'dead' pension monies into cash in your hand. The current rules provide much more flexibility than people realise and we have been able to completely regenerate a business using this technique. Contact us for more details
Latest News
Protected Rights can be transferred into SIPPS
Amazing but true. Contrary to previous rules, you can now transfer your protected rights into your SIPP and get it working for you! Until now, protected rights, which are contributions mainly related to the contracting out of SERPS, could not be utilised in the same way as other pension contributions you may have made, such as those into a Personal Pension Plan.But from October 2008, you have been able to utilise these in the same way as any other monies in a SIPP. So you can buy commercial property, manage your own investments and take drawdown, provided the SIPP provider you use offers these options. Beware, because not all of them do, which is why you should talk to us first. Please also be aware that transferring your protected rights into a SIPP could be seen as a high risk strategy, so is probably only suited to more experienced investors, existing SIPP owners, property investors or entrepreneurs. For these people, being able to release often substantial sums into their SIPP can make a huge difference between being able to buy that next commercial property and not!
Because of the complexity, accepting protected rights into a SIPP can be a lengthy process.
Warnings
Should only be considered by the more adventurous or experienced investor.
For a personal quotation or discussion please use our enquiries form.
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