In this example, the following year the business has made good profits but has not generated large amounts of cash liquidity, with available cash having been used to pay down the outstanding property finance to £50,000. The company can, however, contribute to the two SIPPs by making an in-specie payment of property value.
Although the correct paper trail must be followed, effectively the side trust has to be varied. While the value of the property remains at £500,000, contributions of £50,000 gross for each member can be made representing a total of 20% of the property value. In addition, the company will receive tax relief on the movement of value between it and the pension schemes as a corporate contribution, despite the fact that no cash has changed hands.
The side trust then records ownership as being proportionately held by the SIPPs and the company in the ratio of 80:20. Subsequent rents are then applied to each party in the new proportion and the following year, if the same situation arises, the property can move across to the SIPPs fully.
Some practicalities need to be covered, as valuations will need to be produced to demonstrate that the property passed between connected parties at a commercial rate and there are some inexpensive legalities to cover, but the process is not usually as complex as many would believe.
In fact the acquisition and ownership of commercial property can be far less painless depending on the cooperation, structure and requirements of the SIPP provider. It should be remembered that self invested pensions are more correctly known as member directed pension schemes and the more control, influence or input a member or their adviser can have in a transaction the smoother it can be.
The SIPP provider does of course have the duty of responsibility to ensure that the interest of the beneficiaries should be protected and thus that adequate due diligence and processes are completed on the acquisition. Some providers might insist on a nominated solicitor, panel valuers, panel lenders, compulsory property managers and block insurance policies as well.
While there are arguments for streamlining the process and in some instances economies of scale, many conditions can be seen as a means to move control from the client, which can lead to discomfort or resentment. There are equally good arguments for the use of the client’s own appointed solicitors, valuers or lenders who may already know the building in question and indeed the strength of the company’s covenant.
