What checks will trustees make if I want to put a property into my SIPP/SSAS?
If you’re considering putting a property into your self invested personal pension (SIPP) or small self administered scheme (SSAS), you can expect the pension trustees to make a number of different checks prior to allowing the purchase to go through. The trustees are responsible for ensuring that the pension is being run properly, so they will have a number of criteria that must be met.
Your trustees will only want to buy a property into your fund if they know that it has been properly checked out by a solicitor. They need to ensure that it is worth what they are paying for it, and that there are no issues which could reduce its sale value or chances of being let in future. In short – they want to know it is a good investment.
Is the property commercial?
Your pension trustees will obtain tax advantages for investments in commercial property, but those advantages are not available in the same way for residential property. The trustees will want reassurance that there is no residential use that might lose you those tax benefits.
There are situations where a multi-level property is in commercial use on the ground floor, but residential on the first floor. In these cases, the ownership can be split between the beneficiary of the pension fund, and the pension trustees. This enables the ground floor commercial part of the property (often where there is most value) to be owned by the pension fund. We can help structure a purchase of a mixed use property, so that it can be used in this way.
The trustees will want a title check to be carried out to make sure they know they are purchasing all of the land they expect, and that the property has all rights it needs. They will want to know what obligations will bind them so they can be sure they can comply with those, and are not going to be liable for any breaches.
Searches and enquiries
Before buying a property, the trustees will want to know that full pre-contract searches have been carried out. Pre-contract searches will tell them a number of things about a property. Your trustees will want to know that the property can be used as intended, and that there are no breaches of any local authority or planning requirements. They will want to know if there are going to be any ongoing costs that the pension fund might have to pay out.
In particular the trustees will want to know if there is any potential for future environmental liability; contamination clean-up costs can far exceed the value of a property. A pension trustee company will usually refuse to accept a property to their portfolio where there is a risk of those costs arising. They will therefore usually carry out an environmental search early on in a property acquisition. This will prevent unnecessary costs arising for your fund if they find that they are not able to accept the property.
The trustees will also want full replies to standard commercial property enquiries from the seller, to make sure that they are fully aware of any issues which may affect the property before they are bound to buy it. You will need to be prepared for the time it takes to obtain these searches and replies.
The trustees will always want a valuation carried out before they buy a property into the fund. This is to make sure they are not paying too much for it, and to check for any issues which may affect its future saleability or their ability to let the property out. Essentially, they’ll want to be sure that the valuer has confirmed the property is a good investment.
Is the property let?
The trustees will want to make sure that the property is making money for your pension fund. They will usually therefore want to see a lease in place – be it in favour of yourself, your company or an entirely unrelated party – so there is an income stream.
If there is mortgage finance, the pension trustees will want to know that the income from the property will cover the mortgage because if the mortgage cannot be paid, then the property becomes at risk of repossession.
Have you got sufficient monies?
The pension trustees will need to know that sufficient monies will be available in the pension fund to purchase the property. They’ll want to know this on exchange of contracts to ensure that they are not bound to buy something that they cannot afford.
The trustees will want to know that your pension fund can pay the purchase price, but can also cover the search fees, land registry fees, stamp duty land tax, legal fees, and any other associated costs of the transaction.
If you are looking to buy with mortgage finance, you will need to ensure you’ve organised this as early on in the transaction as possible because arranging the finance takes time. You should make sure (by discussing with your trustees) that the amount of money that you wish to borrow is within the legal borrowing limits for a pension fund (currently 50% of the value of your pension fund), and that the mortgage provider is producing paperwork which meets the trustees’ requirements.
Buying a property at auction is often not appropriate for a pension fund purchase because of the fact that the trustees will need to have fully checked the title and liabilities, and because if a pension fund is not prepared for the purchase, they often cannot meet the completion deadlines. You should always speak with your pension fund trustees before bidding on a property at auction on behalf of your pension fund.
All of these matters can take time to deal with. Using solicitors who are aware of the pension fund’s requirements will help to ensure that property issues are addressed at an early stage – and the transaction can move more quickly than you may have otherwise expected.
Please feel free to contact a member of the commercial property team to discuss progressing your transaction.