Quality Accountancy has been growing successfully over the past few years and has expanded with several new members of staff.
Having discussed the options with their financial adviser, he confirms the accountancy practice could look to purchase new premises in which to house their growing business utilising funds built up in existing pension arrangements.
All three of the partners at Quality Accountancy agree that they wish to pool their pension resources to enable the property purchase to proceed.
Their financial adviser recommends that they each establish individual self-invested personal pensions (SIPP) to purchase the premises, which has been independently valued at £200,000, and is subject to VAT.
A group of individual SIPPs can each purchase a share of a commercial property, in a ‘syndicated’ arrangement. Each SIPP in a syndicated arrangement can buy or increase its share of the property independently.
It also means that when it comes to one member retiring the property doesn’t necessarily have to be sold.
The partners use a solicitor from the SIPP provider’s panel, and provide the recent independent valuation of their property, produced by a chartered surveyor.
Along with their individual SIPP applications, the partners also provide a completed copy of the SIPP provider’s property questionnaire, property administration & risk warning notice, and environmental report questionnaire, along with a cheque for the cost of the environmental report. This cost can be reimbursed to the partners once they have available funds in their SIPPs.
A SIPP is established for each of the partners, along with their own SIPP bank account. A joint SIPP property bank account is also opened for them.
The SIPP provider instructs one of their panel of solicitors to begin work, and sends them the completed property questionnaire, along with a copy of the environmental report.
The partners are also asked to provide a cheque payable to the solicitors, to cover the cost of the local authority searches that must be performed; as with the environmental report fee, this cost can later be reimbursed to them using SIPP funds.
A VAT registration is completed in respect of the property purchase, and the SIPP provider confirms details of the registration to the solicitor. This process can take a number of weeks, depending on HM Revenue & Customs. VAT paid on the purchase price of the property can be reclaimed, however, even where registration is completed after the purchase.
Based upon advice given to each partner by the financial adviser, each partner transfers the benefits they have accumulated in their personal pensions to their new SIPPs. Mr Andrews transfers £180,000, with Mr Brown and Mr Charles each transferring £60,000.
Over the next few weeks the SIPP provider liaises with the solicitor and the SIPP members, providing any information required, and executing or forwarding documentation when necessary. The solicitor informs the SIPP provider that the property purchase is ready to complete, and provides a completion statement that includes their own legal costs, the purchase price of the property, plus disbursements:
Property purchase price: £200,000
Stamp duty: £1,000
VAT @ 20%: £40,200
Legal costs (incl. VAT): £2,400
Disbursements: £200
Total: £243,800
The SIPP provider also charges a one-off fee of £800 plus VAT for administrative work in relation to the property purchase, and £100 plus VAT for registering the schemes for VAT. Once the VAT registration of the schemes is complete, the pension schemes can reclaim VAT paid on expenses relating to the property purchase which in this scenario amounts to £40,780.
The members have agreed that Mr Andrews will purchase 60% of the property, with Mr Brown and Mr Charles purchasing 20% each. The SIPP provider moves the requisite cash amounts from each member’s individual SIPP bank account to the joint property account, and the SIPP provider then transfers the entire completion amount to the solicitor’s account.
Alongside this, property insurance and lease arrangements for the property must be dealt with, and work related to drafting or re-assigning the lease is ordinarily done at the same time as work relating to the purchase of the property.
It is important to remember that if the tenants of the property are connected to the scheme members, as in this case, the level of rent paid must be in accordance with an independent rental valuation. In a syndicated property arrangement, rental income is divided amongst the scheme members in accordance with the ownership of the property.
Paul Darvill is administration and technical director at Talbot and Muir
The post RP case studies: Using pension assets to grow a quality business appeared first on Retirement Planner.