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SIPP or SSAS to buy commercial property in a pension fund?

Scenario

Roger Smith runs an engineering company with his wife Sally who manages the accounts. They currently rent their premises at a cost of £50,000 p.a. but the landlord has given them notice to vacate. They therefore needed to look for alternative accommodation.

The issue

Whilst renting was the preferred option 5 years ago when the company was first established, with a strong track record Roger feels more confident in looking to purchase premises.

Roger has now found some suitable premises that are valued at £425,000.

Sally is nervous about the company taking on too much debt, as the company does not have the funds to meet the purchase price.

The options

Roger had heard it was possible to utilise a SIPP to purchase the commercial property using their existing pension assets but had also been informed via his accountant it was also possible using a SSAS.

Roger has money purchase pensions valued at £135,000 and Sally of £95,000 both invested in managed funds with different insurance companies.

Should Roger and Sally use their pension funds to establish either a SIPP or a SSAS?

What are the differences they need to consider?

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With the Taylor Patterson pension plans, the initial and ongoing fees for two SIPP’s are broadly the same as the initial and ongoing fees of the SSAS.

The decision

After Roger received advice from his financial adviser, the adviser recommended he set up a SSAS. This recommendation was largely due to the fact that it looked like the company had a healthy future with the capacity to contribute further. Which would mean they could have issues with the lifetime allowance as time goes on. The adviser also  demonstrated the benefits of a having a common fund as they generally hold similar views to risk.

The financial adviser recommended that Sally and Roger transferred into the SSAS their existing pension benefits with a combined value of £230,000. The company also contributed £90,000 between them from the cash reserves they had built up, following advice provided by the company accountant. They found a bank, which was willing to lend them the difference of £117,750 providing them sufficient funds to purchase the property and cover stamp duty (£437,750), whilst ensuring that they were within HMRC borrowing limits. All other fees were met by the Principal Employer.

A Chartered Surveyor advised that a market rent of £40,000 was appropriate and a lease would be set up between the pension and the Principal Employer. This would give Sally and Roger a regular return of 9% per annum within their pension fund and would be a deductible cost for corporation tax purposes for the company.

More Information

If you would like to know more about the differences between SIPP & SSAS please contact Kerry Houghton on 01772 5550614, or email Kerry.houghton@taypat.co.uk.

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