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's 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
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
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's 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.