SIPP & SSAS Joint Ownership
For SIPP and SSAS pension schemes joint ownership can be an attractive option as it allows part of a property to be put into the pension scheme. Often joint purchases between a SIPP or SSAS and their member(s) can be seen as complex and lengthy transactions however with the right team in place to assist you through the process this type of transaction should no longer be looked at with trepidation.
Steele Raymond’s specialist pension property solicitors have vast experience in dealing with these transactions including joint purchases that are also subject to bank finance.
What is SIPP / SSAS Joint Ownership?
Applying to both SIPP and SSAS pension schemes, joint ownership offers a solution to individuals or groups within a scheme who wish to purchase a property but have insufficient funds to do so or to a pension scheme member, who already owns a property and wishes to release some equity.
For example: John Smith wants to purchase a commercial unit worth £300,000 to operate his business from. He only has £150,000 available to put towards the purchase of the property; however, he has £175,000 in his SIPP. Therefore, the property could be purchased jointly by his SIPP and himself in his individual capacity. Following completion of the purchase a lease would be granted to John’s business so that they could occupy and trade from the property.
Key Contact
Johanna Hammersley
Senior Associate & Pension Property Specialist
EXPERT GUIDANCE
Helping you and your clients navigate SIPP and SSAS Joint Ownership
Percentage Splits
The percentage which each party owns in the property will depend on the value of the property and the funds available to the parties. In the example above the parties could decide to contribute £150,000 each thus meaning they each held a 50% share in the property.
Alternatively, they may decide that the SIPP will pay £165,000 thus acquiring a 55% share in the property and John Smith £145,000 therefore acquiring a 45% share in the property.
The percentage split is also important as it determines the liabilities, rent etc payable by/to each party. Therefore, if John’s company paid £2,000 in rent per month and the property was owned 55% SIPP and 45% John, the SIPP would receive £1,100 of the rent and John the remaining £900.
This would also be the case for any expenditure payable. For example, on the purchase of the property Stamp duty land tax of £4,500 would be payable. Accordingly, the SIPP would be liable to pay £2,475 and John would be liable for £2,025.
The Joint Ownership Agreement
The arrangement between the parties is formalised by entering into a joint ownership agreement. In simple terms the joint ownership agreement document will deal with the following:
- The percentages in which the property is owned
- How any liabilities in respect of the property will be met
- What will happen to any incomes or any rent (how these are separated)
- It will also deal with the situation where one party might want to sell and ensures that the other party benefits from the first right to purchase
*Please note that a joint ownership purchase is not limited to two parties and a property could be purchased jointly by a number of parties such as: by three separate SIPPs; or by a SSAS and two of its members in their individual capacity etc.
Joint Ownership Purchases
A joint ownership purchase will proceed in very much the same way as a standard purchase and if there is no bank finance involved then there is no reason why a joint ownership purchase should take any longer than a normal purchase.
Delays can however occur when lending is involved and the key to preventing these is to ensure that all parties (including the lender) are familiar with how joint ownership purchases work.
Having dealt with numerous joint ownership purchases where bank finance has been required, we are happy to point you in the right direction as to which lenders may be best suited to assist you.
Why might bank finance be required?
Even though the parties may be jointly purchasing the property both or one party may still be short of funds therefore in this instance there are a number of options available:
- The pension scheme could borrow funds from a high street lender (please note that a pension scheme cannot borrow more than 50% of the amount/value in the pension scheme before the purchase)
- The pension scheme could take a loan from another party – other than a high street lender – such as from the member or the member’s company (however in accordance with HMRC requirements the loan must be made on an arm’s length basis)
- The member (in their individual capacity) could borrow from a high street lender
- The member (in their individual capacity) could borrow from another party -other than a high street lender
- A combination of the above
Limitation of Liabilty
A limitation of liability clause is added to all documentation that a pension scheme enters into to ensure that their liability is restricted to the value of the individual member’s pension scheme funds alone.
Therefore, if a SIPP or SSAS defaulted on their loan, the bank would not be able to pursue other SIPP or SSAS schemes which the professional trustee may also be a trustee of.
Ring-Fencing
The purpose of a ring fencing ‘letter’ is best explained by way of an example:
The SIPP borrows £50,000 and John borrows £50,000. John defaults on his mortgage however is unable to pay off his liabilities to the bank. Can the bank pursue the SIPP for John’s liabilities and ask them to pay the outstanding sum due? No – provided a ring-fencing letter has been entered into.
The ring-fencing letter will ensure that each party’s liabilities are ‘ring-fenced’ from the other. Therefore, the other party will not become responsible for the other’s liabilities.
KEY CONSIDERATIONS
What should you be aware of when considering a Joint Ownership SIPP or SSAS Agreement?
Expediency
Although a joint ownership agreement on a pension property investment is an attractive option for many schemes, there are expediency considerations for all parties to make.
A common issue with the joint ownership process is the potential for delay; meaning that sometimes these types of transactions can take up to a year to complete! However, with the right team in place this can be avoided, with our specialist pension property solicitors turning these types of deals around in a little as 12 weeks.
Third-Party Sellers
Where the private investor or the pension scheme are considering joint ownership on a property with a third- party seller, timing is crucial.
Given the fragile nature of these transactions, it is not uncommon for a third party to opt-out of the sale prior to completion should complications arise.
Where the private investor and pension scheme are considering joint ownership of a property and a third party seller is involved timing is even more crucial; particularly as some sellers automatically assume that there will be additional delays as a pension scheme is involved.
However, we can ensure that they can be progressed by acting initially for the private investor and thus avoiding any delay which may be caused whilst the pension scheme deals with their internal procedures relating to the SIPP or SSAS. Therefore, this transaction should not take any longer than any normal commercial property purchase.
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