Planning law changes open up opportunity for pension savers
It is quite often the case that great opportunities are accompanied by an element of risk. That’s not to say such opportunities should be completely avoided, the key is to seek professional advice to ensure the risks involved are identified and mitigated wherever possible.
As a result of the recent shift to working from home, it may come as no surprise that the rules changed last month to allow commercial property to be converted into residential property with much less stringent regulations - those who wish to do so can now make this change without the need for planning permission.
The easing of these property restrictions has opened up an opportunity for those who hold commercial property within their Self-invested Personal Pension (SIPP) or Small Self-administered Scheme (SSAS). It is not currently possible to hold residential property within a pension without incurring heavy tax penalties. However, a pension can fund the cost of converting commercial property into residential property, so long as the property is removed from the pension prior to becoming fit for occupants.
Benefits of a SIPP and SSAS
An added benefit of having a SIPP is that it can borrow up to 50% of the value of the fund to go towards the purchase of commercial property. This is a great way to maximise profit margins in converting commercial property to residential property.
The benefit of having a SSAS is that it can make loans to UK limited companies and to a sponsoring employer. The loan can be used for any business purpose, including buying new premises. Again, there are rules around this which can be complex and can have expensive consequences if not adhered to.
While this may sound like a relatively simple transaction, it is in fact a highly complex area within pension planning. It is therefore important that anyone considering taking advantage of these changes, seeks professional advice before going ahead. Clients who do not fully understand the rules and nuances of this area, run the risk of incurring tax charges that could have been easily avoided if they had consulted a professional.
Consulting your pension provider
In addition to consulting with a financial adviser, when considering converting a commercial property held within a SIPP or SSAS into residential property, you should also speak with your pension provider to ensure they are comfortable with the proposed changes.
Your pension provider is responsible for ensuring any commercial property held within your pension is compliant with HMRC requirements. They are a useful source of knowledge and should be consulted to avoid any easily avoided problems. Again, you may find you incur tax penalties if your pension administrator does not have knowledge of any changes you make.
Risk and reward
As risky as these rule changes may sound, there are great opportunities here, in the right circumstances. Anyone looking to boost their pension savings could consider capitalising on the rule changes to build up further savings within the tax efficient pension environment. You can also use your existing pension funds to pay for the property conversion, therefore not having to use cash that is outside of your pension.
If you think this is something you could benefit from, why not get in touch with one of our pension experts who can assess your situation and outline the options available to you personally. Our financial advisers will be able to outline the pros and cons in relation to your situation to ensure you can proceed with confidence.
We are currently offering those with £100,000 or more in pensions, investments or savings the opportunity for a free cash flow pension forecast review up to a value of £500.
Cash flow forecasts help to show you your financial future based on your own personal circumstances and what you can realistically expect to achieve.
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