Commercial property investment; the SSAS vs SIPP debate
Letter to Mr Padraig Floyd, Editor, Pensions Management
Mr Padraig Floyd
Editor
Pensions Management
Financial Times Ltd
Number One Southwark Bridge
London
SE1 9HL
United Kingdom
Dear Padraig,
I was very disappointed to read the feature article 'Sipps made simple' in the Pensions Management SIPP Supplement (March 2007). The article seemed to be written from a misconceived perception that one size fits all and a SIPP is the only solution for flexible retirement planning.
The article gave considerable time to an example of a family run business where the owner is advised to establish a SIPP and transfer the company commercial premises to the SIPP over a number of years, in phases. It then explained how the member's son would then take over the business, establish his own SIPP and the property be sold from one SIPP to the other.
Advisers involved in the corporate financial planning arena would be able to identify the flaws in the article but it should have carried a health warning for those looking to enter this potentially lucrative market. Firstly, the example failed to identify some of the issues any adviser would need to consider. Any transfer of property from a company to a pension scheme is not an in specie transfer but a settlement of a debt created by the company agreeing to pay a contribution. Therefore, stamp duty is payable. If the property is registered for VAT there can be significant VAT implication if the property is owned for a period by a partnership, the company and the pension scheme.
Secondly, and of even greater concern, was the suggestion that the member's son would take over the business, establish his own SIPP and the property would be transferred from the father's SIPP to the son's, again in phases. The writer failed to mention the costs of another series of conveyances and another round of stamp duty!
Why would an adviser make such a recommendation? A SSAS remains the ideal vehicle for such a situation. Once in the pension scheme, the property remains within the common trust. No further conveyancing is necessary, members can be added and removed as circumstances dictate. The SSAS can even lend money back to the business if required. Alternatively, a Family Pension Trust (provider based scheme established and separately registered for a single family or group of people) could have been used. Again benefiting from the ability to hold assets in a common trust.
Interestingly, the life assurance company , promoting the article and trying to shoehorn clients into a SIPP model, no longer offers a SSAS.
Yours sincerely,
David Seaton
Director of Consultancy
Rowanmoor Pensions