Lee Halpin explores SIPP property purchases and all associated intricacies
Let's imagine you've decided your client is in the right situation and circumstances to proceed with a commercial property purchase within their self-invested personal pension (SIPP). The due diligence is complete, the financial plan is in place and the paperwork is signed off. You're both ready to go.
The client is buying their own commercial property through their own SIPP, which seems simple enough. At first glance, it seems like you can sign the property over, notify the relevant authorities and clink glasses to a successful piece of tax and financial planning.
You and your clients shouldn't expect any banana skins but, alas, nothing is quite that simple in the world of property and pensions.
Technically, in pension terms, your client is a ‘connected person' to their SIPP. It sounds a bit strange, but it's pretty logical and has practical consequences. Others included in that ‘connected person' term are spouses; relatives; partners of relatives; and relatives of the client's partner.
That means if any of those parties have a connection or interest in companies and trusts involved in the transaction (for example, yourself) the SIPP administrator will insist all the commercial terms are run past an independent valuer and solicitor. This is to make sure all aspects of the transaction are normal and appropriate.
Essentially these rules are in place to prevent people artificially boosting the monies being moved into the tax-free environment, or conversely using pension funds to boost their current financial position.
How to find the right solicitor
We've established clients will need some independent representation to deal with themselves or another connected person, so how can they best go about finding the right person to do that? In any commercial property transaction, there may be issues that arise which are specific to SIPPs or indeed the property.
So, while clients may instinctively want to use their own solicitor, who may be business or family specialists, their representatives might not always have familiarity with the particular intricacies that a SIPP property purchase can encounter.
That's why it is always worth considering using a legal expert from a SIPP provider's panel, who should have all the appropriate experience to best represent members through a transaction.
Speaking as a SIPP provider, it's in our interest for the transaction to run smoothly but that's the only benefit we stand to gain - we don't receive any referral fees or incentives where a client uses one of our panel solicitors for a property transaction in our SIPP.
For advisers and clients, the benefits of using a solicitor from a panel are two-fold. Firstly, the process offers an easy way for SIPP members to access a trusted professional with the right expertise as well as knowledge of the particular SIPP operator's processes and policies. Often there can be a hard deadline for such transactions, for example before a business's year-end. Familiarity cuts down on unnecessary delays, increasing the likelihood of meeting desired timescales.
For transparency, fee levels should be agreed in advance so there are no surprises or nasty add-ons for you or your client to trip over later on in the process.
Secondly, such a transaction can throw up inherent conflicts of interest. There can be various connected parties involved - the seller, the SIPP and/or the tenant. What might benefit one party can have the opposite detrimental effect on the other party. To comply with pensions tax law the dealings between these connected parties must be consistent with that which would be expected with dealings between third parties looking out for their own interests.
A clean and effective way to achieve this is to have clear degrees of separation. Existing professional connections can be engaged to act on behalf of the seller and tenant, whilst an independent party is engaged to act on behalf of the SIPP. This ensures the property transaction runs as smoothly as possible and that conflicts of interest around legal advice are avoided.
All these benefits combine to offer a neat process and transaction, which will keep you, your client and the authorities happy everything has been done by the book.
So, while your client purchasing their own commercial property isn't as simple as buying a stamp, signing a document and sending off a form to HMRC, there are things advisers can do to help the process follow a well-practised and defined route to avoid any unnecessary delays.
Lee Halpin is head of technical services at @SIPP
