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What’s New ?
HMRC have decided not to introduce any further regulations to the topical subject of investing in residential property through pension schemes as they believe there are sufficiently comprehensive.
Why is this important ?
The simple reason is that we can proceed with a structure which allow pension fund assets to be invested in residential property if structured in a particular way.
How is this achieved ?
The regulations only allow schemes created as a SSAS to make a loan to an employer of a SSAS. (SIPPS cannot do this).
An employer may use those funds to invest in residential property, provided that the following tests are met:
- The property is acquired for either of the following purposes:
- a trade, profession or vocation carried on by the sponsoring employer, or
- the sponsoring employer’s administration or management.
- The residential property is not occupied or used by a member of the pension scheme or a connected person to such a member.
- The SSAS will not have a charge against the residential property purchase as it could be argued as being “held for the purposes of the scheme” and as such could be taxable.
Can anyone be an employer ?
In theory yes, however as there need to be at least one employee.
Can I have an example on how all this works?
Fred and Terry run a plumbing business, but were always interested in residential property investment. After taking financial advice they establish a limited company and the which sponsors a SSAS. The plumbing business is also a scheme employer and makes a contribution into the SSAS of £100,000 which qualifies for tax relief under an agreed process with Pension Practitioner .Com.
Fred and Terry also set up a property company; this is admitted to the scheme as a sponsoring employer and the prime purpose of trade is residential property investing.
The property company receives a loan from the SSAS equal to 50% of the fund. It uses some of those funds for the purpose of securing the deposit on the residential property, with the balance of funds being used to meet refurbishment costs. As the residential property was acquired for the purposes of it’s trade, the first test is met.
The members do not reside in the property as as such the second test is met. The SSAS does not place a charge on the property and it’s interest is limited to the interest receivable on the scheme loan plus the charge placed on assets of equal value in the plumbing business. Therefore a loan default does not create an interest in the residential property.
Under this scenario, the pension fund is used for investment in residential property through a property company.
It is important that regulated financial advice is taken before setting up a SSAS.