Small Self-Administered Schemes (SSAS) are able to purchase commercial property as well as commercial and agricultural land. Once purchased, the property or land can be leased to your company or an unconnected third party. Alternatively, assuming that the proper planning permission is obtained, land can be developed into commercial property.
The SSAS can buy commercial property from an unconnected third-party or someone connected to the SSAS (such as the sponsoring company, a member or relative of a member). Buying from your company or the member can release SSAS money to the business or member which has been a useful tool in difficult economic times. It should be noted that where property is bought from the business, there may be a Corporation Tax liability on the company.
If the vendor is someone connected to the SSAS, a market valuation of the property or land must be carried out prior to purchase and the price paid by the SSAS must exactly match the valuation. A valuation should be considered a prudent part of the purchase process even if the vendor is unconnected.
Likewise, if the property is to be leased to someone connected to the SSAS, a market rental valuation must be obtained and this should be the rent quoted in the lease. Failure to let the property at a commercial rate may result in a tax charge being raised by HMRC.
If the SSAS doesn’t have enough money to fund the purchase it can borrow to cover the shortfall or jointly invest in a property with the company, the member or another party. Borrowing is restricted to 50% of the net asset value of the SSAS and must be carried out on normal commercial terms to avoid tax charges. Borrowing will be in the name of the SSAS trustees and not the individual directors or the company. Security will usually be required if the lender is not connected to the SSAS.
Whilst a SSAS should not invest in residential property, there are some exceptions. Care homes, hotels and designated student Halls of Residence are not treated as residential property. There are also some job-related properties that are exempted (such as a pub with a landlord’s flat). The conditions for this type of investment are extremely strict though and require a number of criteria to be met in order to ensure that they are not inadvertently classed as residential property. A shop with some flats above it with their own entrance would not qualify.
Please note that should a tenant experience financial difficulties, non payment of rent will adversely affect you in retirement.
Our Guide to Retirement Benefits explains how a maximum capped drawdown pension is calculated. The rates are not related to the income the SSAS receives from its investments (including property) and this can result in the maximum capped drawdown being less than the income received for high yielding assets.
Basic information needed before property or land is purchased:
- confirmation of the property or land address
- confirmation that the property is commercial
- if the property is going to be subject to VAT, the pension fund can elect for VAT
- if the land is purchased from a connected person (such as a member or relative of a member) then the property must be valued by a suitably qualified surveyor and this value ascribed by the surveyor must be the amount paid
- a solicitor must be appointed in order to carry out the purchase, Barnett Waddingham doesn’t insist on any specific solicitor being used and therefore you are free to find the most suitable solicitor for your needs
Completion of our Property Purchase questionnaire provides us with a lot more information, highlights any potential difficulties, and makes the transaction easier.