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Sipp mates

As previously discussed, your partnership can use a self-administered

personal pension plan to access different investments including property.

All three of you have transfer values available from your previous

employer&#39s scheme which could be paid into a Sipp arrangement where the

investment and legal/administrative framework have been split. You normally

pay a fee to the administrator or manager and are then allowed to invest

the funds in a variety of permitted investments approved by the Inland

Revenue.

One aspect of these investments, and obviously one that is of great

interest to yourselves, is the ability to purchase commercial property

which can then be owned by your Sipp plan.

Any rental payments from leasing the property to your own business or a

third party become investment growth in your pension.

You can buy property individually although the partnership would obviously

have greater buying power if your transfer values were combined and, from

our previous discussions, I understand this would be the preferred route.

Your combined funds should give sufficient monies to purchase a shop or a

small office outright. However, the other option would be to borrow further

money and invest in a bigger property.

The Inland Revenue has recently confirmed that borrowing must not exceed

75 per cent of the purchase price of a property. Your transfer values can,

therefore, be used to provide a deposit and you can borrow further monies

from within these pension arrangements. If a loan were taken out, then the

rental payments received would first be used to pay the mortgage

repayments, with any excess being invested.

Normally, providers need the independently set rent to be 15 per cent

above the mortgage repayment. Once the mortgage has been paid off, the plan

can own the property outright and, when it is eventually sold, will not be

liable for capital gains tax.

As you may be aware, some property has now been registered for VAT but,

owing to the tax-favoured status of the pension plan, this can be reclaimed.

If necessary, you are allowed to borrow an additional amount to cover the

cost of the VAT liability arising but such a loan has to be repaid within

12 weeks of the date of purchase or sooner if the VAT is reclaimed. It has

been suggested that this timeframe is quite short so, if you are looking at

property where VAT is included, this should be borne in mind.

You are interested in looking at licensed premises or a property in the

hotel and catering industry. I am pleased to be able to confirm that the

Revenue will allow the purchase of such premises as at one stage it was

feared it would be prohibited. The concern was that you as individuals

should not derive any benefits from the investment – such as moving your

families into the premises – and the Revenue has confirmed that it will not

approve the purchase of leisure facilities, such as golf courses, for

similar reasons.

If you are looking to purchase a property with your other partners, you

need to consider what will happen if any of you decides to leave the

partnership and what will occur as you retire.

It may be that the pension plan will need liquid assets to provide a

transfer value in the case of someone leaving or to fund tax-free cash in

an amount to purchase an annuity at retirement.

The retirement problem can be alleviated as income drawdown can be used to

provide an income but, at age 75, the current rule is that the fund needs

to be liquidated and an annuity purchased. In the long term, therefore, you

will need to consider whether, as the oldest of you approaches this age,

the jointly owned property should be sold outright and the proceeds split

between you or whether the younger partners will buy out the older

partner&#39s share and continue holding the property for a further period.

Although you may not need to face such issues for some time, it is better

to discuss and agree these upfront, rather than have them cause friction

within the partnership later. You must also bear in mind that there are

additional costs when purchasing the property through the Sipp as well as

the usual legal and survey fees.

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