Group Property Transactions

For Use By Financial Advisors Only

This note is for general guidance only and is based on our understanding of the current position of the rules relating to property transactions. Specific advice should be sought in respect of each individual case to ensure that the requirements of HMRC and relevant legislation are being met.

Group Property Transactions Background

Commercial Property investments within Self Invested Pension Schemes are quite popular. The ability for a Scheme to borrow 50% of its net assets can greatly assist in the transaction, but even so in many instances it is still difficult for the Scheme to afford a specific property.

The solution may be to consider the purchase as part of a group, whether other parties share in the ownership of the property, and thus make the purchase affordable.

Group Property Transactions Summary

  • It is possible for a SIPP to participate in a group transaction, where the group jointly owns the property rather than any one party individually.
  • Typically, the group will consist of other pension schemes like SIPPs, and the membership of the schemes usually relates to a family group or business partners/directors.
  • The group can consist of other parties too, such as a company or individual. This might help where affordability in the pension remains an issue.
  • Each participant’s ownership is determined by the amount invested compared to the total cost. They then receive rental income and pay costs proportionately.
  • A partnership agreement governs interactions when a pension scheme is in the group. This would usually be prepared by the solicitor acting on the purchase.

Group Transactions

Group transactions often involve SIPPs or SSAS schemes belonging to those with a common goal, like family members or business partners. This combines funds to improve affordability.

It is possible for non-pension entities like a member or company to be in the group. This helps where contribution limits prevent funds going into pensions, or there are advantages to retaining ownership personally.

In specie contributions of part of the property can allow temporary shared ownership in line with joint purchases.

Borrowing

The group can borrow against combined funds to assist purchase. This is straightforward when all are pensions.

Borrowing is still possible with non-pensions if pension funds are protected. For example, any liability of an individual must not extend to the pension in case of default.

Non-pensions have no 50% borrowing limit, so they may borrow more to assist, provided carefully documented.

Ownership and Control

Each participant’s ownership reflects their contribution to purchase costs. This determines rental income and cost responsibilities.

A partnership agreement governing interactions, responsibilities and property management is vital for group purchases.

Pension schemes need control over selling the property if the member dies or retires, with ability to sell the whole property if a buyer won’t purchase the scheme’s share.

The solicitor acting on the purchase typically drafts the partnership agreement.

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