Working together
The adviser will work with the investor to choose a SIPP provider that offers flexibility and has experience of property purchase. The provider will ensure that all actions taken are within pension legislation, especially when borrowing is involved.
They will also manage the funds for the development by settling the costs of the various parties involved.
The roles of the surveyor, solicitor, bank and contractors are also key. The work that they carry out is the same as for a normal property transaction and the fact that it is a purchase being made by a SIPP does not alter this.
Making the decision to invest and develop a commercial property within a SIPP is only the starting point. As with any property development there needs to be a clear vision and plan.
When dealing with a property in a state of decay, as with The Lodge, that plan needs to be comprehensive, detailing a definition of purpose for the building, blueprints and architect plans, the correct funding, additional contributions or transfers and borrowing, if required, as it is the SIPP that will meet the costs of development.
It is also important to have a comprehensive work plan, including scheduling utility suppliers. Consideration should also be given to any adjoining properties or access.
In addition, considering the VAT position is an important factor that will have consequences for reclamation of VAT during the development and then on any subsequent disposal.
It is during the renovation work that the role of the SIPP provider starts to come to life. As the owner of the property on behalf of the investor’s SIPP the provider will check that the work is appropriate and allowable for the pension, meaning that getting a SIPP provider with specific property and legal knowledge is key.
Once the development is agreed, along with the work schedule, many of the perceived barriers and complications disappear. The electrician or roofer does not care that a SIPP will be paying for the work instead of an individual or a business.
When The Lodge was transformed from a ruin in just under a year, a contemporary office environment was created comprising 12 workstations, a kitchen area, bathroom and shower facilities along with parking for six cars and a covered area for bicycles.
Business expenses
The completion of a renovation or development is just the start for a property purchased within a SIPP.
There are three main options available to the investor, firstly to occupy the building as a tenant. In many cases the investor also has a business and may have chosen the property to develop with this business in mind.
The company would pay a market rent to the SIPP that is normally relievable as a business expense, meaning that the investor’s pension profits.
