SIPP - Self Invested Personal Pension Plan
Introduction > > Self Invested Personal Pension
This term is now redundant in its technical pre-April 2006 sense, although it is expected to continue as a marketing/descriptive term.
What you need to know post April 2006 if you have an existing SIPP contract.
It will continue as a Money Purchase Arrangement, and you can invest as much as you like, subject to the Annual and Lifetime Allowance rules. It is proably now a self-directed investment.
Investments, Borrowing and Anti-Avoidance- new rules are a little different, discuss with your Financial Adviser, especially if your scheme has any property or moveable assets, or you wish to consider a connected persons transaction.
The information below relates to pre-April 2006.
SIPPS are Personal Pension Plans structured to allow the full range of investments allowed by law, rather than the limited range of funds that most pension contracts impose.
The wider powers most often utilised are the ability to invest directly in stocks and shares rather than via a fund, or to select funds from the full spectrum of those available together with and the ability to purchase COMMERCIAL property, (such as the property that the business operates from).
SIPPs can be used by those people who either want to manage their own investments, require access to a wide range of funds either self select or advisory basis, or for whom the property purchase aspects could make good business sense.
Be advised that there is a lot of important detail that you will need to understand before committing to a SIPP, (especially if it is property purchase that interests you). This product may not be suitable for you, and you should therefore seek Financial Advice before proceeding.
More about SIPP and Property
What follows is a look at the requirements and issues relating to SIPP Property purchase.
Note that the Property will be owned and managed by the Pension Trustees, and that in law they have responsibilities and potentially significant liabilities. As a rule they will do what you ask, (you are the client), but only within what they consider to be acceptable limits, which partly reflect their understanding of what is acceptable to the HM Revenue and Customs, and partly what is required for them to protect their position. If you step outside those limits you can expect the deal to get expensive, perhaps fail, and possibly even result in large liabilities to yourselves or the fund.
If you find a property that you like, do NOTHING until you fully understand the process involved. In particular note that any contractual arrangement you enter into might result in the deal becoming impossible to complete. So do nothing more than express interest until you have cleared it with your SIPP provider/financial adviser.
• SIPPs can only purchase commercial property. Not residential.
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SIPPs can purchase land, but normally for development or commericial letting,
not to be a land bank.
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SIPPs cannot purchase from connected parties. (ie you cannot sell to your
pension a property that you already own).
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SIPP providers can often be even more restrictive than the law requires. They
might not be willing to get involved with properties that they think will create
undue work or problems. Part of our role will be to ensure that we find the
right provider.
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SIPPs can only pay a price that is close to that agreed by a professional valuer.
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SIPPs must seek a commercial rent. You cannot use a SIPP owned property to
provide your business with a cheap location, nor can you charge an over the
top rent in order to reduce your corporate profits.
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You can expect to be required to have very thorough surveys and searches conducted.
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The SIPP can borrow up to 75% by way of a mortgage, but if it does so then
it must be shown that rentals will more than cover the mortgage.
On the other hand, if you are benefiting from 40% tax relief on your pension
contributions, three partners putting in a couple of years worth of pension
premiums (say £150,000 total, net cost £30,000 each ), leveraged
with a mortgage allows the purchase of a £600,000 property. By renting
the property the firm can then not only have their own pension contributions
building up the fund, but also their rent. Financially it can be very attractive,
but it has to be done correctly.
Last updated on May 28, 2008