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PENSIONS & INVESTMENTS
SIPP, SSAS and Commercial Property
Choosing the right SSAS or SIPP to meet your requirements is important, as the wrong choice could result in having to pay for services you do not need.
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SIPP & SSAS
Could you benefit?
Both are types of investment regulated pension schemes, however SSAS and SIPP differ in terms of flexibility, costs, governance and eligibility. Choosing the right SSAS or SIPP to meet your requirements is important, as the wrong choice could result in having to pay for services you do not need.
Our expert advisers will help you to decide the type of scheme, as well as the specific product, which is best suited to meet your needs.
SIPP
Self-Invested Personal Pension
A SIPP is a personal pension plan set up by an insurance company or specialist SIPP operator where the member has greater control over the investments. Anyone can take out a SIPP providing they meet the provider's eligibility requirements, which are often based on a minimum fund size. SIPP plan features include:
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The option to invest in both non-insured assets such as unit trusts and property and insured assets such as a trustee investment plan
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A member's employer can contribute to the pension plan and may operate payroll deduction on the member's behalf.
SSAS
Small Self-Administered Scheme
A SSAS is a small occupational pension scheme that is set up by the senior members of a business who want more control over the investment decisions relating to their pensions; in particular, wanting to invest their scheme funds into the business. SSAS schemes are:
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Small in size, generally having no more than 11 members, who are usually employees or directors of the sponsoring employer.
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Each member is usually a trustee.
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Each member has a notional share of the SSAS funds including non-insured assets such as property and possibly insured money held in a trustee investment plan.
SSAS versus SIPP
Which is more flexible when it comes to investment? The SSAS, through which current legislation allows for investments to be made in the sponsoring employer. A SIPP, on the other hand, does not have a sponsoring employer (although any employer can contribute to it).
SSAS (Small Self-administered Scheme)
It is an occupational pension scheme.
SIPP (Self-Invested Personal Pension)
It is a personal pension plan.
SSAS can lend money to sponsoring employers.
Loans are not allowed to any members or any person/company connected to the member. Any such loan made by a SIPP would be an unauthorised payment.
Can invest up to 5% of the fund value in the shares of the sponsoring company.
A SIPP doesn't have a sponsoring employer so can theoretically invest up to 100% of the fund in the shares of any company. However if it’s a company owned or controlled by the member, that’s regarded as investing in taxable property.
Can buy shares in more than one sponsoring employer so long as the total market value at the time the shares are bought is less than 20% of the total value of the scheme.
If the company involved is controlled by the SIPP member or an associated person, investment in that company would be regarded as investing in taxable property.
SSAS can potentially own 100% of a company's shares so long as the value doesn't exceed 5% of the value of the SSAS.
A SIPP can potentially own 100% of a company's shares as long as the company is not controlled by the member, and this is acceptable to the SIPP provider.
SIPP & SSAS
Commercial Property SIPP
A SIPP (Self-Invested Personal Pension) does not only provide a wider choice and type of investment when it comes to saving for your retirement, this type of savings also provides the opportunity to buy and invest in commercial property directly.
This is a particularly useful method for small business owners who want a tax-efficient way to hold or purchase commercial property, however the commercial property does not have to be connected to the individual’s business. A SIPP can likewise be used to invest in a property which generates income from a commercial tenant.
Together with the other SIPP plan holders, it’s possible to pool the funds held in the SIPP to buy or part-buy commercial property – including offices, shops, industrial units, hotels, car parks or farmland. Residential properties, buy-to-let properties and holiday homes are excluded.
Your SIPP can borrow up to 50% of the value of your plan, less any existing borrowings, towards the purchase of the property, with the lender usually being a bank or a building society. Commercial property purchases often entail certain requirements such as immediate tenancy, a commercial lease agreement and/or environmental report. Also you must factor in legal and surveyor costs as well as potential Stamp Duty Land Tax and VAT charges.
However, there are significant tax efficiencies to be made by those who purchase commercial property to be used as their own business premises. For example, although you will have to pay rent at commercial rates to the SIPP, the rent should be an allowable business expense therefore will reduce the tax you pay on any profits from your business.
Also, the rent you pay into your SIPP, less any loan repayments, generally grows free of income tax and capital gains tax. There is also no Inheritance Tax Liability – in the event of your death, the property invested in your SIPP is likely to be fully exempt from IHT.
The value of pensions can fall as well as rise, you may get back less than you invested.