SSASs – like Sipps – may apply for VAT such that any VAT suffered on purchase or development/improvement of property can be reclaimed. A proviso is that VAT is then chargeable on rental of the premises.
Different mechanics
So far we have seen that SSASs and Sipps operate very similar acceptance criteria and, both being registered schemes, they have the same rules, have the same borrowing capacity, both can jointly acquire so whether a SSAS or Sipp is utilised will come down to individual circumstances.
It is here in the mechanics of processes that a SSAS can sometime hold an advantage over a number of individual Sipps.
It is common that with the restricted contribution limits and current maximum borrowing capabilities of only 50 per cent of the net value of a pension scheme, the scheme cannot afford to buy a property outright on day one. In such circumstances, a phased/joint purchase might take place with the pension scheme buying a proportion of the property and perhaps the company buying the remainder. This can be achieved by holding the property in a side trust, for the benefit of the underlying beneficial owners being the SSAS and company.
Where subsequent amendments in ownership are required, having a single trust SSAS is less administratively complex than having perhaps four individual Sipps.
The flexibility afforded by the cascading down of assets within a SSAS can also be advantage.
Where a family business has a SSAS holding the property from which the business trades it is obviously not ideal for the property to be sold when benefits need to come into payment. It is quite usual for the parents to have a greater proportion of the fund and thus a larger interest in the property. By using new contributions for the next generation to service benefit payments for the parents, the proportion the property can gradually be moved down a generation. While it would be possible for this to occur with individual Sipps, the process would be more complex and require cash movements between the Sipps effectively buying tranches of the property each time. Being that this would be a change of beneficial owner, transaction costs and stamp duty land tax would be payable on each occasion. However, within a SSAS, being a single trust, the ownership of the asset does not change. It is only the proportional ownership within the SSAS that needs to be amended by the scheme administrator.
Liquidity
A common misconception and on occasion a reason for not investing into it is that commercial property is an illiquid asset. Many believe it is either held or it is sold and that there is no in between.
Hopefully the examples listed above will have demonstrated that this is not the case, and another example of where joint ownership of property can be useful is where property is used in the payment of benefits in specie. A member of a pension scheme may have a total fund of £600,000 of which £300,000 is a farmed agricultural land, £175,000 in an equity portfolio, depressed due to market conditions with the remainder as cash.
