The concession provides that the whole of the property could be acquired by the pension, on the basis that the person occupying is unconnected to both the client and the company who is occupying as tenant.
They must also be residing there as a condition of their employment and would need to vacate immediately once this employment comes to an end.
Another consideration here are tangible moveable assets (TMAs), and these are in essence fixtures and fittings. Imagine if you were to pick the property up and shake it, what would fall out? This is normally a useful measure for considering what may constitute a TMA.
However, advice should be sought from a qualified surveyor as to what is a TMA, and also what value should be attributed to the items.
A Sipp or Ssas cannot purchase TMAs, so it is important to ensure that these are not included in the purchase contract. Purchasing TMAs could incur punitive tax charges on the pension as they are considered taxable property.
If clients do want to acquire these goods, they may wish to consider entering into a deal with the seller to acquire these, although valuation advice should be sought to make sure that both transactions are being undertaken at a reasonable cost, to avoid a potential value shifting issue if one transaction is undertaken below market value due to the existence of the other transaction.
Letting and developing a property
Once a property has been acquired, the next step is usually to put a lease in place with a tenant. This tenant could be connected to the client, or a third party, the decision rests with the client. It is always beneficial for the client to undertake their own due diligence on any prospective tenant.
Signing a lease for a fixed period of time secures an ongoing tax-free income, but only if the tenant pays their rent. Removing a non-paying tenant can be a laborious and expensive process and would inhibit the pension’s income stream. Due diligence on tenants could involve a credit check via an estate agency.
There are a vast array of different types of tenancy agreements a client may decide to put in place with a tenant. This includes temporary tenancies like a license or a tenancy at will, and formal leases.
With pensions, the idea is to protect the pension and the wealth within it. This is why a fully repairing and insuring lease is preferable.
While this does take away some of the flexibility of a temporary tenancy, it theoretically provides known income into the pension over a period of time, and it clearly outlines the obligations on both the landlord and tenant when it comes to things like insurance, maintenance and repairs.
