Purchasing a property through a Small Self-administered Scheme (SASS) pension is in many ways similar to a personal property purchase. However, along with the benefits that come with purchasing a property in your pension, there are restrictions. What exactly then, are the main steps to purchasing property through a SSAS?
Choosing the right property
If you want to take advantage of the tax breaks available when you purchase property through a SSAS, then you will want to restrict your search to commercial property and land, not already developed residential property.
Why’s this? Well, although technically it’s possible to purchase residential properties, any residential investment comes with significant tax penalties. Commercial properties are without these penalties and provide exemption from Income and Capital Gains Tax on profits from the property.
The types of commercial properties to consider include, but are not limited to: shops, hotels, warehouses, factories, eateries and office buildings.
There are a few exemptions to the commercial-only rule, such as hospices and hospitals, prisons, student halls of residence and care homes. You can also invest in commercial or agricultural land or land intended for future development.
Financing the investment
Once you’ve targeted a property, it’s time to consider finances.
Can the value of your SSAS meet the purchase price, along with the fees and transactional costs of purchase? These are numerous costs which could include: Stamp Duty (England, Wales, Northern Ireland), Land & Buildings Tax (Scotland), VAT, advisor fees, fees for solicitors, bank fees, surveyor’s fees, insurance costs and business rates (when there is no tenant).
You also need to consider whether you have a significant buffer for unpredictable costs that may arise.
When you can’t meet the costs
If you’ve crunched the numbers and it has become clear that the value of your SSAS will not meet the costs, then you have options.
You can choose to combine with family members or other scheme members to meet the predicted financial cost.
Alternatively, you can borrow within your pension. You may borrow from a bank or even yourself or your business, as long as it’s on commercial terms.
Borrowing is limited at 50% of the net asset value of your SSAS. Bear in mind that lending from a commercial bank will likely increase the timescale of the purchase.
Usually transactions take 8-12 weeks from the day the solicitor is appointed to completion.
You should appoint a RICS approved surveyor to provide a valuation. This will help you negotiate the best possible price and demonstrate that the price has been valued independently.
A SSAS can be used to purchase property owned by your own company or a connected party, providing that the above valuation is carried out in order to ensure the transaction happens at an arms-length market value.
Mistakes – don’t let them happen
Buying property through a SSAS could be a smart financial move that can bring great benefits, but it’s not without its risks. The best way to avoid making costly mistakes in the process is to enlist the help of professionals. Prydis has in-house experts in business, law and finance who can give you advice that can guide you through each step and ensure that you make the right decisions for both you and your business.
Want to know more? Give us a call, we never charge for an initial conversation.