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Boris Johnson recently announced that we need to “build, build, build” new infrastructure to help boost the UK economy. Whilst the relaxations of the planning system bring good news for the construction industry and house builders, we explain why it could cause tax issues for SSAS and SIPP members holding commercial property.
One of the advantages of providing pension benefits in a SSAS or SIPP is being able to invest in commercial property, with the rental income and capital gains this type of investment may bring. SSASs and SIPPs can hold a range of commercial properties subject to certain criteria being met, including shops, offices and hotels. They can also be let to parties connected to the pension scheme as long as the transactions are carried out on arms-length terms. However, residential property investment in almost all forms is not tax efficient.
The Covid-19 impact
The coronavirus lockdown is hitting the economy hard and whilst some companies are surviving or even thriving, and are able to continue to meet their rental obligations to SSASs and SIPPs, many business may be struggling. Some pension scheme landlords are now facing rent deferrals, rent reductions and even looking at the prospect of their tenants going into liquidation, leaving them with a vacant property, a business rates liability and property expenses to meet.
Radical reforms to planning system but no relaxation of tax rules
As a member of a SSAS or SIPP if you have found yourself in this situation, you may have found the Prime Minister’s press release “Build, Build, Build” encouraging. Under new rules, which are planned to come into effect in September, existing commercial properties may be able to be converted into residential property more easily. The proposed changes will include:
- More types of commercial properties having total flexibility to be repurposed through reform of the Use Classes Order. A building used for retail, for instance, would be able to be permanently used as a café or office without requiring a planning application and local authority approval.
- A wider range of commercial buildings will be allowed to change to residential use without the need for a planning application.
- Builders will no longer need a normal planning application to demolish and rebuild vacant and redundant commercial buildings if they are rebuilt as homes.
Unfortunately, the relaxations to these planning rules do not have matching relaxations to the tax rules governing pension schemes. It remains the case that acquiring or developing residential property in a SSAS or SIPP generates penal tax charges.
In my blog, "Holding residential property in SSAS or SIPP" – what you need to know," I explained some of the complications of determining what HM Revenue & Customs will deem to be residential property and the tax charges that will be incurred for holding residential property. Therefore if you are considering making any changes to the use of the property in any way or carrying out a residential property development, please talk to your professional trustee or SIPP operator before taking any action. Pension scheme legislation is complex and the tax charges for getting things wrong, even inadvertently, can be significant. Your professional trustee or SIPP operator may be able to help you achieve what you want to tax efficiently. Alternatively, they may have to confirm to you that your proposed plans cannot be achieved without incurring tax charges and this may save you from being taxed adversely.
Extensions to planning permissions
If you have already agreed a property development with your professional trustee or SIPP operator and are concerned that your planning application will expire unless you start work on the property a recent announcement by housing secretary Robert Jenrick may help. Planning permissions that are due to expire after the start of lock down and end of this year may be extended until 1 April 2021. It may be worth checking this point if you have a piece of land in your SSAS or SIPP, which you are hoping to sell at an uplifted value because of the planning permissions.
Approving tenant rent deferrals
Finally, if you felt it would be appropriate in the current circumstances, it may be possible to approve requests for rent deferrals - even to a connected tenant, such as your company. This may help their short cash flow or profitability problems as a result of the Covid-19 and help the SSAS or SIPP keep its tenant in the long term. Your professional trustee or SIPP operator can provide guidance here.
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