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Residential property is generally not a tax efficient investment for a SSAS or a SIPP. However, as I mentioned in an article I wrote, not all properties providing accommodation will be deemed by HM Revenue & Customs (HMRC) to be 'residential property' and therefore subject to penal tax charges.
Some student halls of residence, for example, are exempt from being classed as residential property, meaning they constitute one such type of property that could be considered as an investment for a SSAS or a SIPP.
I had the privilege of studying at the University of Leicester and living in one of its halls of residence. I was very fortunate as the halls were next door to the university’s beautiful botanical gardens and the accommodation very comfortable. At that time the halls consisted of what I consider to be a more traditional halls of residence style, with each student having their own room and sharing a small kitchen and bathroom. However, there was a vast array of other types of accommodation available to me and my fellow students. Some of my friends lived in self-contained flats provided by the university, whilst others rented rooms or houses from private landlords.
What types of student property may be allowed in a SSAS or SIPP?
Given the range of accommodation available to students, when considering whether student accommodation can become an asset in your SSAS or SIPP it is first worth looking at the type of property you are considering and its connection to an educational establishment. It is unlikely that HMRC will consider an individual house let to students as a hall of residence. Indeed, buy-to-let residential properties, even where let commercially, cannot generally be brought into a pension scheme tax efficiently.
For a property to be deemed a ‘halls of residence’ and thereby exempt from being classed as residential property, HMRC state that:
- it must have an educational establishment identifying the accommodation as a halls of residence;
- an educational establishment must be involved in placing students in the accommodation;
- those students occupying the building must come from a single educational establishment;
- the building must not be broken up into self-contained apartments with one or more bedrooms;
- there must be common living areas for the use of all of the occupants; and
- individual rooms within the property cannot be acquired or disposed of separately.
If the property is registered with one university and the university is promoting it to (prospective) students as university managed accommodation, then it may be easy to demonstrate that the first three conditions above are met.
What types of student property may not be allowed in a SSAS or SIPP?
The stumbling block usually comes when the layout of the property is considered. Whilst the traditional style of accommodation that I lived in may fit the next two conditions in HMRC’s list, many new builds would not. This is because of the self-contained nature of the accommodation. Some of the more modern student accommodation is made up of small apartments, with a kitchen and bathroom for the exclusive use of the students living in that apartment. The students would not have to leave the unit to gain access to the kitchen and bathroom through a common hallway. The apartments could therefore be classed as self-contained; even if there was more than one student living in the apartment.
It is not possible for the SSAS or SIPP trustee(s) to purchase an individual room in a halls of residence. This could be classed as holding property that is used for the enjoyment of residential property and therefore expose the SSAS or SIPP to punitive tax charges. It’s similar to a SSAS or SIPP not being able to purchase the garden for a house. Although the garden is not in itself a residential property, it could be classed as being so because of its direct connection with the residential property.
How else can you invest your pension in student property?
If it is not possible to invest directly in student accommodation, tax efficiently, there may be other ways of using your pension savings to invest in this type of property. For example, you may be able to invest in a Real Estate Investment Trust (REIT) or another type of investment vehicle. Again, certain criteria would need to be met, but it is something that could be considered.
Understanding the rules to invest wisely
There are a number of factors to consider when deciding whether to bring a halls of residence into your pension scheme. Not all types of halls of residence will be a tax efficient investment for the pension scheme and you will need the approval of your Professional Trustee or SIPP Operator before taking any action. Some properties will not meet HMRC’s criteria as set out above and if the property is deemed by to be residential property, the tax charges for you and your pension scheme will be significant.
For more information about holding student accommodation in a SSAS or SIPP, please contact your usual Barnett Waddingham consultant or get in touch here.
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