Can a SSAS Invest in Residential Property?

Question: can a SSAS invest in residential property?

Answer: Ordinarily, no. Your pension scheme cannot hold residential property – at least not without incurring tax penalties. Yet there are ways that your SSAS could help you develop residential property in a tax-efficient, profitable manner. Before embarking on any complex financial planning, we recommend getting advice from a suitably qualified financial adviser who is used to dealing in such matters.

SSAS pensions and property investment: where do you stand?

Small self-administered schemes (SSAS) are a good tool for investing in commercial property. You can also invest in commercial and agricultural land. Unfortunately using your SSAS to invest in residential property can incur significant penalties with HMRC. However, there are ways to develop residential property with assistance from your  SSAS without losing your tax advantages.

The key point is that your pension must not hold a property that is suitable for use as a dwelling – i.e. a property that has a completion certificate. That means there’s an opportunity to use a SSAS to develop a residential property – as long as it’s sold before the completion of the build.

You may also be able to avoid tax penalties if you can prove that the dwelling is used to house employees as a condition of their employment – as shown in the case of J & A Young (Leicester) Ltd v HMRC 2015.

A tax-efficient way to develop residential property?

Let’s imagine some hypothetical scenarios:

Scenario 1: Your SSAS holds a commercial property which has just obtained residential planning permission. It could take steps to convert the property into residential dwellings, but sell the properties off plan (prior to completion) to third parties (even to yourself personally or a company you own, as long as an independent valuation is obtained providing evidence of market value.

Scenario 2: Your SSAS holds a commercial property, for which you have received planning permission to convert into a block of flats. As you are over 55, you are entitled to draw a tax-free lump sum from your pension of up to 25% of the total fund value. But instead of drawing cash, you transfer the commercial property from your SSAS into your private ownership.

Next, you transfer the property from your personal ownership to your company as a director’s loan. It is permissible to loan money from your SSAS to your business to fund the residential development of your commercial property.

Why is this so tax-efficient? Interest on the SSAS loan is tax deductable for your business, but received tax-free in the SSAS. In short: you effectively benefit from an interest-free loan, while helping to boost your pension fund. All the while freeing up the money needed to fund your residential development to sell on at a profit in your personal hands.

You can also use your SSAS to buy land that has been zoned for residential development. This is a permissible investment as long as the land does not contain any building or structure that is suitable for use as a dwelling. You could then obtain residential planning permission and sell the land on to a developer.

What other type of property can you invest in?

It is possible to fund residential development with your SSAS, but there are complications with which you need to familiarise yourself. The good news is that SSAS’s give you a lot of flexibility to invest in a wide range of commercial properties and land. Allowable properties include hotels, care homes, some residential properties with commercial use, student halls, prisons and many more.

Need some advice?

To conclude, it is possible to use your SSAS to fund a residential development. But the regulations surrounding this type of investment are complex. Getting it wrong can be costly in terms of HMRC penalties. And if you are using your SSAS for more than one residential development, HMRC may consider your pension scheme to be trading. That would mean waving goodbye to your capital gains tax exemption.

Want expert advice? We can make your property investment work harder for your future. Here are a few words about what you can expect from our service.

Nothing in this article construes, or is intended to construe, financial advice. You should always seek advice from a professional financial adviser who is familiar with this type of pension planning, to ensure any recommendations made will be suitable for your needs and circumstances.