Enhance your chances with inward investment

The credit crunch has reportedly reduced the number of mortgage products available from more than 14,000 to less than 3,000. This means property investors have to think outside the box to increase their armoury of financial weapons to secure property. One such weapon is the Self Invested Personal Pension (SIPP). For many clients, particularly self-employed business people, company directors and business owner-managers, a SIPP is an excellent tax efficient vehicle for property acquisition.

A SIPP is a type of UK government approved personal pension scheme which allows individuals to make their own investment decisions from the full range of HM Revenue & Customs (HMRC) approved investments. The principle behind a SIPP is an individual can make a better job of enhancing the value of their pension contributions by investing the money themselves, as opposed to leaving the job to an anonymous fund manager. The erratic performance of the stock markets in recent times has meant many people’s expectations of the ultimate value of their pension on retirement has not been met.

A SIPP gives the choice and opportunity to invest in assets over which they have a greater measure of control, such as commercial property which may be let to the SIPP owner, his business or a third party. If someone acquires a property through their SIPP pension fund, they have the greatest possible control over the conduct of the tenant. Rather than making mortgage repayments or pension contributions to an anonymous financial institution they’ll actually be contributing to the value of their own personal pension as the years go by. The appreciation in the property’s value will also accrue in part to them and in part to their pension. It’s an attractive idea.

Some developers are actually building new properties specifically with this process in mind. Nikal Developments in Manchester, for example, has already released its first SIPP-specific office building, MyBuro in Cheshire with considerable success. Suites have been snapped-up by business owner-occupiers and Nikal has several more developments on the drawing board around the country. The idea has been a big hit with owners of SMEs and professional firms.

Despite its success, many property investors still have scant, if any, knowledge of SIPPs. Individuals interested in a SIPP need to first of all speak to a professional advisor. Setting up a SIPP can be rather time-consuming and complex, so when acquiring a property through a SIPP fund, vendors might have to wait a little longer than usual for completion. If the customer already has a pension plan in place it needs to be converted into a SIPP, operated by appointed trustees. The pension fund can then act in a way similar to a corporate entity. For example, it can become VAT registered and buy and sell assets on the instructions of the person whose SIPP it is, and take out a loan or enter a mortgage arrangement, at the discretion of the trustees.

There are strict rules and limits to the amount that can be contributed in any single tax year and the kind of assets you can acquire. Vintage wines, classic cars, art and antiques are prohibited, while the acquisition of residential property is subject to strict rules. The transaction will almost certainly require cooperation between the respective parties solicitors, accountants or financial directors, independent financial advisers, mortgage brokers, insurance brokers and surveyors. It’s easy to see how completion times can be delayed. Obviously a great deal will depend on the circumstances of the individual customer.

However, as the MyBuro development has proved beyond doubt, there are circumstances in which acquiring a property through a SIPP scheme is highly attractive to businesses and professional people.

Mike Hymanson
0161 827 1800 or email mike.hymanson@lhs-solicitors.com