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Wensley Mackay
Property Purchase Guide
2015/16
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority
Introduction
Buying a property through a pension scheme is very similar to purchasing a property personally. The
key difference is, of course, it tends to be considerably more tax efficient. The other subtler
difference is that you will co-own the property with another Trustee – WM Pension Trustee Services
Ltd. As a result we have certain requirements that we insist on in the property purchase process.
This is a guide to outline how the property purchase process works with Wensley Mackay and our
requirements. This is based on our understanding of current legislation and regulatory guidance and
may change. All property acquisitions are different so please speak to us about your specific
scenario in addition to using this guide.
The Basics
This section answers some general queries regarding purchasing a property through a Wensley
Mackay SIPP or SSAS.
What kind of property can a pension scheme hold?
Pension schemes are, in theory, permitted to hold whatever property they like. Some properties,
however, trigger very onerous tax charges (up to 82%) so pension providers will not permit them as
investments in their scheme. The acceptable properties are commercial properties such as shops,
offices, warehouses, factories etc. Properties such as farmland and woodland are also permissible
with certain provisos. Residential property (including buy to let, holiday villas, second homes) is not
accepted.
Residential Property
Certain properties can fall in to a grey area between residential and commercial. There are certain
properties which are specifically permitted in HMRC legislation including nursing homes, student
halls of residence and, believe it or not, prisons. There are additional requirements for the
acceptability of these sorts of properties so please discuss them with us at an early opportunity.
Detailed due diligence will be required before proceeding and additional legal and other costs are
likely in order to ensure compliance with legislation and our internal procedures. It is worth noting
that student flats do not constitute student halls of residence.
Some properties certain ‘caretaker’ accommodation. This is another delicate area and may still be
permissible depending on who occupies the property (it should not be anyone ‘connected’ with the
member
Tangible Movable Property
Tangible Movable Property (TMP) includes items such as cars, antiques and fine wine. These items
attract heavy tax charges levied by HMRC and as such Wensley Mackay do not permit them to be
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held in our pension schemes. Items which may not initially appear to be TMP may be caught by
HMRC’s TMP rules. Computers, telephones, desks and so one would constitute TMP. Items of
machinery, even very large ones, may be deemed to be TMP and therefore liable to tax charges.
When purchasing a property it is vital that only the building is purchased with no items which might
be deemed TMP acquired. If you wish to purchase items already in the property you are acquiring
this must be done personally or via your business. If the property is being developed it is important
no items which might be deemed TMP are included in that development. If you are uncertain about
a particular item please contact Wensley Mackay in advance.
Solar Panels and wind turbines
Current HMRC guidance on whether solar panels and wind turbines constitute Taxable Movable
Property (TMP) is not clear. Until a clear ruling has been given the tax consequences of owning a
solar panel or wind turbine in a pension scheme Wensley Mackay do not permit them in our pension
schemes.
Goodwill
If a property is being purchased which is part of a purchase of a trading business the pension scheme
will only purchase the physical property and will not make any payments to reflect goodwill.
Forms
We will need our property purchase questionnaire completing which provides us with the basic
details. Every section must be completed. If this is not the case we reserve the right to return the
form to you which may delay the purchase. We may require more information dependent on the
specific circumstances of the deal.
Can I buy a property from myself?
It is possible to buy a property from yourself or someone connected with you such as a partner. This
must be done at open market price and a valuation will be required to support the transaction.
Split Ownership
We do not currently permit ownership split between a Wensley Mackay pension scheme and the
member, the member’s company or a third party. We do permit ownership to be split between two
or more Wensley Mackay pension schemes.
Leasehold and Freehold Properties
Provided the lease is sufficiently long (this is not to be confused with the occupation lease discussed
above) – a minimum of 60 years is required with a remaining term of 100 years is recommended –
leasehold properties are permitted as well as freehold.
Property Purchase Questionnaire
This form can be found on our web site and should be fully and accurately completed. It provides us
with most of the details we require to deal with the property purchase and if not accurately
completed can cause delay and additional expense for the Member. It should be sent to Wensley
Mackay as soon as possible.
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority
Borrowing
Yes, the trustees of the pension scheme are able to borrow up to 50% of the net asset value of the
scheme. So a scheme with a £200,000 property and £100,000 in cash could borrow £150,000. A
scheme with a £300,000 property, £50,000 cash and a £100,000 loan outstanding to the bank could
borrow another £25,000 ( (300+50-100) x 50% - 100 ).
It is important that Wensley Mackay receive the loan documentation including the loan agreement
and legal charge at least three weeks before the proposed completion date. It may be that the loan
agreement and / or legal charge is not suitable for the pension scheme. This decision is at the sole
discretion of Wensley Mackay and Wensley Mackay will not be liable for any delays or costs that
may result. The earlier we can review the loan documentation the better as some negotiation with
your chosen bank is likely to be necessary. It is worth noting that the bank must consent to the
liability of our trustee company being limited to the assets of that particular pension scheme.
Valuer
You may select a valuer of your choice provided they are a RICS surveyor and independent of you.
They must be formally appointed by the Trustees and submit their report to the Trustees via
Wensley Mackay. It is likely that if there is bank borrowing that the bank will require a valuer to be
on their panel so you should make enquiries of the bank at an early stage. If a bank valuation has
been provided it will not be necessary to obtain a separate valuation for the Trustee’s purposes
provided all of the requisite information has been provided in the report.
Solicitors
You may appoint a solicitor of your choice to do the conveyancing work and draw up the lease.
Once Wensley Mackay has been informed via the property purchase questionnaire of your chosen
solicitor we will write formally appointing them and providing them with the details and
documentation they require. The cost of solicitors (as well as any other professionals appointed) is
met by the pension scheme. It is worth ensuring that your chosen solicitor is experienced in pension
scheme property acquisitions before they are appointed.
The solicitor cannot generally act for vendor and purchaser or for landlord and tenant.
Searches
As you would expect with a property acquisition there are a number of searches the solicitor needs
to conduct. Whilst if you were purchasing the property personally you may elect to omit some
searches or ignore some unfavourable results this is not possible when purchasing via a pension
scheme. We require a satisfactory environmental search in all cases. A chancel liability search is
also required with insurance policy put in place in the event a risk is identified. |The usual water,
local, coal and so on searches are also required and must be satisfactory. If the searches are not
satisfactory Wensley Mackay will not proceed with the purchase.
An asbestos survey is also required unless an up to date asbestos log is provided by the vendor. The
member must ensure that the property meets all relevant health and safety legislation.
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority
Development
If you intend doing any development work on the property you are acquiring that you intend to be
funded or part funded by the pension scheme the development must be pre-approved by Wensley
Mackay in advance. It is likely that we will require that an architect is formally appointed to oversee
and co-ordinate the work. All invoices must be supported by an architect’s certificate prior to them
being paid. A detailed costing must be submitted to Wensley Mackay prior to work commencing
and funds must be in place to cover the full amount including any VAT.
Auction
It is possible to purchase property at auction, however, given the relatively short completion time
frame of auction purchases and the difficulty doing due diligence in such circumstances before a
deposit is paid over we ask the member secure the property personally and enter into the contract
and that, should the property prove suitable, it will be purchased by the pension scheme. The
deposit will be refunded via the selected solicitor’s client account. It is of course possible that a
member successfully bids for a property, pays over the deposit and enters into a contract to
purchase and then it is discovered to be unsuitable for pension scheme purchase. This would result
in either the member purchasing the property personally or losing their deposit which would not be
refunded by the pension scheme. It is therefore vital that utmost care is taken when buying at
auction.
Selling at auction is more straightforward. Please talk to one of our consultants who can discuss the
procedure with you.
Liquidity
It is the Member’s responsibility to ensure that adequate funds are available for meeting expenses
including fees, rates, insurance, pension, PAYE, loan repayments and so on. Wensley Mackay
reconcile all bank accounts on a monthly basis and monitor the activity in the account in order to
help with the smooth running of the scheme but it is important the Member assists this by ensuring
that funds are available to meet outgoings in a timely manner, that an adequate buffer of liquid
funds is maintained and, if necessary, make contributions having taken suitable advice from your
accountant or IFA prior to doing so. In the event that funds are not available it may mean that
pension payments are stopped or even loan repayments are missed which could result in a bank
enforcing their legal charge on the property.
Completion Dates
Wensley Mackay’s experienced administrative and consultant staff are used to working with tight
deadlines and quick turnaround times. However, any completion date agreed with a vendor should
be discussed in advance with Wensley Mackay and Wensley Mackay cannot be held responsible for
delays and additional costs which can occur with property purchases.
Aborted Purchases
If the property purchase falls through for any reason Wensley Mackay (as well as other
professional’s) fees are still due. Wensley Mackay are not responsible for any delays or aborted
purchases resulting from (but not limited to) unacceptable environmental searches, problems with
title, residential or Tangible Movable Property issues, unavailability of insurance at reasonable
terms, bank loan agreements or legal charges which are not acceptable to Wensley Mackay for any
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority
reason and so on. We of course will try to assist in finding a way to secure the purchase but
unfortunately this is not always possible.
Condition of Property
It is imperative that you satisfy yourself as to the condition of the property prior to committing to
purchase. The condition of the property at the point of completion is entirely the responsibility of
the Member(s).
Leases
All properties must have a formal lease in place. This lease must be drawn up by a fully qualified
independent solicitor formally appointed by the Trustees of the pension scheme. If the property is
let to a ‘connected party’ such as your or your relatives business this must be on commercial terms
and a rental valuation of the property will be required by an independent surveyor. It is possible
that the level of the rent could be challenged by HMRC so it is vital that the rent is set correctly to
reflect market conditions and that any terms in the lease such as rent free periods or break clauses
have been signed off as commercial by the valuer. Rent should be monthly, quarterly or annually
not weekly.
If the tenant is not connected to the member we would expect that the lease would exclude the
provisions of the Landlord and Tenant Act 1954. If the tenant is connected these provisions would
not generally be excluded. It is worth discussing the implications with your solicitor.
The lease should generally be full repairing (internal and external) and insuring Lease terms over 7
years will have to registered with Land Registry – this is the responsibility of the tenant. Stamp Duty
may also be payable on the lease as well as the purchase.
Careful consideration should be given to the inclusion of personal guarantees to support the lease.
The member and/or their agent should satisfy themselves regarding the creditworthiness of the
proposed tenant before entering into the lease.
VAT
It is possible that a property has been elected for VAT meaning that VAT will be recovered on the
property purchase and development and charged on the rent and on subsequent sale. Wensley
Mackay administers the VAT for a small charge as outlined in the fee schedule found in the
explanatory brochure. It may be the case where, particularly if there is a substantial amount of
property development, you wish to elect the property already held within your pension scheme for
VAT. Wensley Mackay cannot provide VAT advice on such matters and you should seek professional
guidance from suitably qualified accountants prior to making your decision. In certain circumstances
Wensley Mackay may require written advice regarding specific VAT issues at the cost of the pension
scheme.
Insurance
Ultimately it is the member’s responsibility to ensure that the insurance is appropriate and adequate
to the risks specific to that property including the level of cover and the risks covered. As Wensley
Mackay may not necessarily have visited the property we cannot be held responsible for any
inaccuracies or problems caused from inappropriate cover. The Trustees of the pension scheme
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority
interest should always be noted on the policy and a copy supplied to Wensley Mackay. We will of
course endeavour to assist at renewal where we are able.
Empty Properties
If a property becomes vacant for any reason this should be immediately communicated to both
Wensley Mackay and the insurer or insurance broker. Insurance premiums may be higher for vacant
properties. The non-domestic rates will then fall on the pension scheme to pay once any empty
property relief period has expired. Rates can be a significant outgoing and are likely to impact on
the liquidity of the scheme.
The Member should ensure the vacant property is safe and secure. The property should be
marketed via an agent to find a new tenant.
Rent Arrears – Third Party Tenants
Rent arrears of third party tenants will be pursued by Wensley Mackay. However, Wensley Mackay
are not property managers. It is therefore expected that the member will assist with rent arrears
situations where possible. It is also possible for the Member to appoint a professional property
manager to assist with rent collection, advice on renegotiating leases and rent reviews and so on. In
the event of persistent rent arrears it may be necessary to employ the services of a solicitor to take
further action. Additional charges will accrue to the Member where rent arrears issues occur with a
tenant as outlined in the fee schedule.
Rent Arrears – Connected Party Tenants
Rent arrears from connected party tenants (ie where the tenant is the Member, someone related to
the Member or a company owned by them) are a potentially very serious issue. Such rent arrears
will be pursued and if they persist it is possible that HMRC will treat the arrears as an unauthorised
payment and levy onerous tax charges thereon. Additional charges will accrue to the Member
where rent arrears issues occur with a tenant as outlined in the fee schedule.
Non-Domestic Rates
Rates should be payable by the tenant in most cases and the lease will reflect this. If the property
falls vacant then the rates will be payable by the pension scheme. It is important that the member
ensures that funds are available for making these payments whilst no rent is being received.
Payments to Members
It is not possible to make any payments to members for property management or any similar
activity. As the scheme is a ‘Member Directed Pension Scheme’ it is expected that the Member will
undertake activity for their own benefit without payment. It is likely that if any such payments were
made that they would be treated by HMRC as unauthorised payments and be taxed accordingly.
The Property Process
The purchase of a property is rarely a quick process, however, we aim to make it as quick and
painless for you as we are able. We specialise in property investment utilising the tax advantages of
pension schemes and have seen most scenarios and problems before. You should be realistic about
the time frame of the deal and discuss any deadlines with us prior to committing to the purchase. If
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority
you intend to buy at auction you should secure the deal personally (paying the deposit yourself) and,
if the property is subsequently shown to be acceptable to the Trustees it can be moved over into the
SIPP with the SIPP completing the deal as with a standard property purchase. With auction and
sealed bid type acquisitions careful consideration should be paid to the time frame imposed on the
purchase by the vendor or auction house particularly where a deposit or similar undertaking has
been made.
Risk
The Trustees will be the legal owners of the asset. Property is an illiquid asset. You should discuss
your retirement intentions with your adviser to make sure that the property purchase will not
preclude, complicate or otherwise limit your taking benefits from the SIPP. A life policy held by the
Trustees to protect a loan and liquidity in the event of the Members death should be considered.
Rental voids can lead to problems with servicing loans and payments of benefits. The SIPP may have
to meet the payment of rates on empty properties. The value of your property may fall as well as
rise as, in certain circumstances, may the income generated. Certain events such as rent reviews,
crystallising benefits and USP limit recalculations require property to be re-valued – this will be at
the cost to the SIPP and can be quite significant particularly in ‘phased drawdown’. Valuations are
generally deemed to have a three month ‘shelf life’ and should be addressed to us.
How to proceed
Our fee schedule can be found in our explanatory brochure which is on our web site along with our
application form, property purchase questionnaire and all the other documents you may need to
establish your pension scheme and start the property purchase process. We appreciate this can
seem complex so please call us on 01900 828882 and speak with one of our highly experienced
consultants.
Wensley Mackay Ltd are authorised and regulated by the Financial Conduct Authority