Having a lease that is fully repairing and insuring obligates the tenant to pay for the cost of the property maintenance and insurance.
Dependent on the set up of the scheme, it might be an obligation on the client to collect rent and account to the pension for this. Or the pension provider might invoice the rent and collect this directly.
Some clients decide to appoint third-party property managers to oversee the pension property, to minimise their involvement.
It goes without saying that there needs to be a market to let the property to, which is where the due diligence that the client should look to undertake pre-purchase will add value. If the property is unusual or in a challenging location, the market to let the property may be narrowed.
Some clients or tenants may wish to undertake development works to the property during the pension’s period of ownership.
This is principally permissible and provider requirements are likely to differ based on scheme type and set up. Development works might encompass everything from new windows and doors to extensions or refits.
If the tenant is a connected party, valuation advice is likely to be required to validate who should pay for the cost of the works, either the landlord (that is, the pension) or the tenant.
The lease terms may need to be amended as a result of the works. For example, if the tenant were to pay for a refit of the property, they may benefit from a rent free period on the basis that the improvements remain in place after they vacate the property.
When it comes to funding development works or property purchases, HMRC regulations permit clients to borrow funds to purchase a property via their Sipp or Ssas, however there are stringent regulations on any lending. Clients can borrow up to 50 per cent of the net fund value of their pension.
Where any borrowing exceeds the 50 per cent limit, the Sipp or Ssas may be deemed to have made a scheme chargeable payment under regulations and incur a scheme sanction charge of 40 per cent.
Selling the property
When it comes to selling the property, the decision rests with the client as to when they want to sell.
They may wish to sell to fund income or drawdown, perhaps their company is the tenant and they want to sell the property along with the company, or maybe the market is particularly buoyant or there is a high demand for that type of property.
Much the same as other investment types, advice should be sought as to how to and when to disinvest in order to maximise the benefit. This will be very dependent on the client’s accumulation, decumulation and retirement strategy.
