What are the stages
The property questionnaire lets us know the character of your property purchase and it is broken down in the following simple constituents:
Nature of the purchase
You can buy a property with your own SIPP or join forces with other members to buy your property with a Group SIPP. We will also entertain doing a joint property purchase with an associated company.
If you are using a SSAS then it is very rare that the members of the SSAS would need to join forces with another pension to buy a property but, as above, we will consider buying a property jointly with the sponsoring employer.
Funding
Once your worked out the structure, the next stage is how the purchase is to be funded.
This can be done by a combination of using existing pension money (transfers), further contributions or borrowing.
Once you’ve ascertained the current value of your pension and if you are able to make additional contributions, borrowing is a popular option to help with the transaction.
The first step in borrowing is to speak with your existing relationship manager at your bank and then look at the high street lenders who are keen on Pension property purchases.
Alternatively, you or your company is able to lend to your scheme but to keep the HMRC happy this has to be done on a commercial basis that matches what you would be paying a bank.
VAT
It is impossible to distil onto one page the intricacies of VAT when it comes to commercial property, which is why we always advise clients to get specific advice on the matter.
In a nutshell, VAT is generally chargeable on the sale of a commercial property that is either:
- Subject to an option to tax
- Less than 3 years old
Other than sales of new commercial property, the sale of commercial property will usually be exempt from VAT in the first instance.
However, it is possible to elect to waive the exemption. This is commonly referred to as an option to tax. This has the effect of making future supplies in that property, such as rental or sale, subject to VAT at the standard rate.
Opting to tax is often done as it helps secure input VAT recovery on expenses related to the property. This might include input VAT paid on the purchase, refurbishment, development works and ongoing maintenance. In the absence of an option to tax, input VAT on such purchases might otherwise be irrecoverable.
“TOGC”
It is possible to structure a commercial property sale so that it qualifies as a transfer of a going concern (TOGC). Where the TOGC rules apply, the sale of the property falls outside the scope of VAT; this means that no VAT is chargeable. This gets rid of the need to fund the VAT and additional Stamp Duty.
We must point out though that the TOGC rules are very strict. If all the criteria are not met, the HMRC could make the decision that VAT is due. It is therefore very important that you seek tax advice for such transactions as Organon are not VAT experts and cannot advise on any aspect of the subject.
Organon will accept your instructions for a transaction on the understanding that you have taken specialist VAT advice prior to our appointment and, subsequently, Organon will accept no liability for any incorrect treatment of VAT.
Insurance
A property must be insured for its reinstatement value (not always the same as purchase price or market value) and have cover for property owner’s liability (public liability for land) and loss of rent.
Organon have a Block Insurance cover which you can join from the initial purchase and then this will be renewed on an annual basis.
You are able to get your own insurance cover but the block policy, due to economies of scale, can prove to be cheaper as well as providing wider cover and policy enhancements.
