Xafinity SIPP Webinar SIPPs & Commercial Property 07 October - PowerPoint PPT Presentation

Xafinity SIPP Webinar SIPPs & Commercial Property 07 October 2015 For Financial Advisers Only

Jeff Steedman Head of SIPP / SSAS Business Development Graeme Melville SIPP / SSAS Senior Technician Sonyia Woolnough Partner Bevirs Solicitors 2

Xafinity Group - Key Facts  Primarily pensions consulting actuarial firm  >40 years specialising in Pensions  £50m+ turnover business  500 corporate clients  6 offices  440 people (60 actuaries) SSAS & SIPP  SSAS since 1979  SIPP since 2004  1400 SSAS schemes (UK ‘top 5’ provider)  1650 SIPP members  4,600 members  Hold client assets of £1.6bn / 1600 commercial properties 3

Adviser Opportunity Some stats from Federation of Small Businesses  SMEs employ 15.2 million people in the UK and had combined turnover of £1.6 trillion  On average members have owned their businesses for 13 years  Just over 80% are aged 45 and above, and of that group 58% are of pension age  For company loans taken out in the last 12 months, 74% are paying a rate of 5% or more Which means:  Well established, mature businesses  With owners who should be thinking about pensions and planning for their retirement  Who could:  Pay in large one-off contributions into pensions for them and their business partners / wives  “Self invest” in their businesses by using pension scheme money to purchase the company premises  The company can use that money to pay off existing loans or expand their businesses Tax benefits include:  Capital value of the property can grow in a tax free environment  Rental income paid to the pension scheme can also be re-invested to grow the fund, it can further help reduce the company’s corporation tax bill , it can create liquidity for the member to draw benefits via drawdown and it places the premises out of the reach of company creditors  Provide you with a long term client with personal and business advice needs 4

Agenda  Overview of commercial property purchase  Simple property purchase case study  Multi member purchase with exit strategy case study  In specie property contribution case study  Other considerations (VAT, land development, B&Bs, holiday lets)  Summary 5

Commercial Property Investment perspective: Types of property purchased:  Long term investment  Retail shops, offices, factories, pubs, brownfield,  Connected party – link success of company and greenfield, agricultural land pension scheme  Residential – limited circumstances  Two thirds of our SIPP properties in last 12 months connected parties  Freehold, leasehold & beneficial ownership  Impact on scheme liquidity in early years Mechanics: Types of clients & business sectors:   RICS Survey / Valuation Dentists, vets, opticians, the health care sector   Environmental review / survey / pre approval Solicitors, surveyors, accountants, architects, design companies and financial advisers  Financing the purchase  Manufacturing, industrial estates, garages, factories,  Borrowing petrol stations, etc  Solicitor appointment  Farmers with barns, agricultural land, etc  Small retail shops, hairdressers, coffee shops, etc  Hotels, pubs, nightclubs, care homes, nursing homes even prisons! 6

Poll Question How many SIPP or SSAS property purchases have you recommended in the last 12 months?  0 and 1  2 and 4  5 or more 7

Important considerations  Commercial or Residential property? http://www.hmrc.gov.uk/manuals/ptmanual/ptm125200.htm  Connected or Unconnected transaction?  Who owns the property after purchase?  Leasing & rent 8

Simple Property Purchase Case Study  Mr & Mrs Clarke directors of Beta Ltd based in Nottingham want to buy company premises through their SIPP  Following applies in all cases: 1. RICS Survey / valuation report 2. Environmental, residential & flood risk reviews 3. Solicitor appointment  Green light for purchase  RICS surveyor values property at £180,000 with annual rent of £15,000  The property is not subject to VAT 9

Solicitor Overview  When does the Solicitor get appointed ?  Timeframe from appointment to completion 8-12 weeks  What can get in the way? Borrowing delays o Local Search delays o Title problems o Other people not having the same time requirements o  Can IFAs help to speed things up? Hard copy ID early as possible o Contact details e-mail & phone early o Land Registry number /postcode o VAT o Lender with SIPP experience o Communication o 10

Legal Process Overview Purchase Buyer wants to acquire a property SDLT Register at Land Registry Solicitor instructed checks title, searches, enquires, mortgage, insurance in place Completion Legal ownership changes CONTRACTS EXCHANGED Lease backs start No Return Solicitor does final searches collects money 11

Legal Process Overview Sales / Transfer out Completion Exchange of contracts. Details of amount needed Buyers solicitor to pay off carries out borrowing searches and obtained checks title. Solicitor collects If the Property is Buyer gets Information on let rent details mortgage and title and replies to obtained. arranges enquiries. insurance Utility bills, rates bill. Rent history. Asbestos survey Decision to sell. EPC Planning Permissions. Drafts contract. 12

Simple Property Purchase Case Study  Mr & Mrs Clarke directors of Beta Ltd based in Nottingham want to buy company premises through their SIPP  Following applies in all cases: 1. Environmental, residential & flood risk reviews 2. RICS Survey / valuation report 3. Solicitor appointment  Having recently transferred in funds from personal pensions into cash within the SIPP the fund values are Mr Clarke £100,000 and Mrs Clarke £120,000  Green light for purchase  RICS surveyor values property at £180,000 with annual rent of £15,000  The property is not subject to VAT 13

Simple Property Purchase Case Study Name Existing SIPP Fund Proposed Property Share Property Share Value Mr Clarke £100,000 40% £72,000 Mrs Clarke £120,000 60% £108,000 Property Purchase Funding The purchase price is £181,800 (£180,000 plus 1% Stamp Duty Land Tax). This does not include solicitor or surveyor fees or Xafinity’s own fees. Mr Clarke Mrs Clarke £72,000 £108,000 £720 £1,080 14

Simple Property Purchase Case Study Rent Payments  Rent is paid by tenant to a central property account held in the SIPP  Property bills are paid from this account  Funds regularly moved to the individual client SIPP accounts in accordance with their percentage ownership of the property  Reinvest share of the rental income as desired. 15

Simple Property Purchase Case Study Rental income paid to Mrs Clarke members Property 60% individual SIPP account bank accounts £9,000p.a. Tenant rental: Landlord Mr Clarke property £15,000 p.a. 40% expenses £6,000p.a. 16

Poll Question What type of clients do you have?  Healthcare sector  Financial services  Manufacturing / engineering  Retail  Construction  Hotel & leisure 17

Multi Member Purchase with Exit Strategy  Mr Smith (age 55) and Mr Jones (aged 68) are the owner directors of a small manufacturing firm based in Manchester. They would like to buy the company premises to inject some cash into the business for expansion  Mr Jones wants to retire at age 73, take his benefits out of the scheme and cut all ties with the business  Mr Smith is keen to retain the property within the pension scheme  Environmental survey is clear and RICS valuation sets purchase price at £125,000 with rental of £11,650 per annum  There is VAT on purchase 18

Multi Member Purchase with Exit Strategy Purchase Price (£125,000) SIPP assets Mr Smith  Property of £125,000 Personal Pension  Cash of £14,000 £95,000  VAT reclaim £25,000 Joint SIPP Trustee VAT  Total assets £164,000 Bank Account (£25,000)  Mr Smith 55.88% £170,000  Mr Jones 44.12% Mr Jones Personal Pension £75,000 Fees (£6,000) 19

Multi Member Purchase with Exit Strategy Without the injection of additional funds Mr Smith will not have sufficient funds to create the liquidity required for Mr Jones to take all his benefits in five years times as planned out of the scheme and for the property to remain a scheme asset. Redistribution between members (cash for assets) The plan is for Mr Smith to build up his cash fund to enable a potential future 'buyout' of Mr Jones’s share of the property when he retires in five years. 20

Multi Member Purchase with Exit Strategy Mr Smith Mr Smith Five Annual Rent income years’ contributions £6,510 pa Growth £10,000 pa (gross) Mr Smith Cash fund now Mr Smith Mr Smith £95,000 £17,790 cash £95,000 cash Property now valued at £175,000 £97,790 property £175,000 Members property exchange cash for assets Mr Jones Mr Jones £30,000 cash £107,210 cash £77,210 property Mr Jones Takes PCLS & drawdown funds 21

Poll Question How likely are you to consider using a SIPP as a business succession planning tool with clients?  Already do  Extremely likely  Likely  Unlikely  Extremely unlikely 22