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Taylor Patterson are often asked if it is possible to purchase a property jointly with either a SIPP or SSAS and other parties.
The answer is that it is generally possible, with other parties such as the member, the members business or independent third parties. What sometimes can be a problem is when purchasing jointly with another pension trustee due to incompatible requirements.
What issues do you need to consider when making a joint property purchase?
The complications tend to arise when borrowing is brought into the equation by one party or both.
When taking a legal charge over the property the bank needs to ensure that any sale proceeds are proportioned across the parties involved.
The Bank and the Property Trustees need to formalise the agreement. This should state that it is their mutual intention that only the proceeds of sale or other realisation of the property representing the interest in the property of the pension scheme are to be utilised by the bank for the repayment to the bank of the liabilities of the pension borrowing.
Also the bank will need to agree that if the bank sells or otherwise realises the property pursuant to its powers as mortgagee, the bank will divide the net proceeds of sale into separate funds, each representing the share of the property held by each of the pension schemes and the other parties concerned (as detailed in the Declaration of Trust).
The fund representing the share of the pension scheme will be applied by the bank in payment of all the liabilities to the Bank of the Borrowers as the Trustees of the Scheme with any balance being split into separate funds in the proportions of property ownership.
This will be dealt with by the way of a Cross Liability Letter.
This protects the pension fund assets in a forced sale situation particularly where the value of the property has significantly fallen and means the bank is not able to use pension fund monies to repay other parties debts.
If we look at a property valued at £200,000:
Pension fund purchases half by way of £70,000 fund and £30,000 borrowing.
Company purchases half by way of a £20,000 deposit and £80,000 borrowing.
If the property is then sold under repossession for £120,000 the pension fund will get £30,000 after the repayment of its debts. £60,000 proceeds less the £30,000 mortgage.
The company will still owe the bank £20,000. £60,000 proceeds less £80,000 mortgage.
Without the cross liability agreement the bank may well have taken its full £110,000 of debt leaving only £10,000 for the pension fund. This would result in unauthorised payments.
It is our recommendation that if you are going to do this that you speak to the bank at the earliest opportunity.
If you are considering joint property purchase without the requirement of borrowing involved, this is a more straightforward transaction.