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Xafinity SIPP Webinar
SIPPs & Commercial Property 07 October 2015 For Financial Advisers Only
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Jeff Steedman Head of SIPP / SSAS Business Development
Graeme Melville SIPP / SSAS Senior Technician
Sonyia Woolnough Partner Bevirs Solicitors
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Primarily pensions consulting actuarial firm >40 years specialising in Pensions £50m+ turnover business 500 corporate clients 6 offices 440 people (60 actuaries)
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
Xafinity Group - Key Facts
SSAS & SIPP
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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
Adviser Opportunity
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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
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Investment perspective: Long term investment
Connected party – link success of company and pension scheme
Two thirds of our SIPP properties in last 12 months connected parties
Impact on scheme liquidity in early years
Types of property purchased: Retail shops, offices, factories, pubs, brownfield,
greenfield, agricultural land
Residential – limited circumstances
Freehold, leasehold & beneficial ownership
Types of clients & business sectors: Dentists, vets, opticians, the health care sector
Solicitors, surveyors, accountants, architects, design companies and financial advisers
Manufacturing, industrial estates, garages, factories, petrol stations, etc
Farmers with barns, agricultural land, etc
Small retail shops, hairdressers, coffee shops, etc
Hotels, pubs, nightclubs, care homes, nursing homes even prisons!
Mechanics: RICS Survey / Valuation
Environmental review / survey / pre approval
Financing the purchase
Borrowing
Solicitor appointment
Commercial Property
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Poll Question
0 and 1 2 and 4 5 or more
How many SIPP or SSAS property purchases have you recommended in the last 12 months?
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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
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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
Simple Property Purchase Case Study
Green light for purchase RICS surveyor values property at £180,000 with
annual rent of £15,000 The property is not subject to VAT
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Solicitor Overview
When does the Solicitor get appointed? Timeframe from appointment to completion 8-12 weeks What can get in the way?
o Borrowing delays o Local Search delays o Title problems o Other people not having the same time requirements
Can IFAs help to speed things up? o 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
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Legal Process Overview Purchase
Buyer wants to acquire a property
Solicitor instructed checks title, searches, enquires, mortgage,
insurance in place
CONTRACTS EXCHANGED No Return
Solicitor does final searches
collects money
Completion Legal ownership changes
Lease backs start
SDLT Register at Land Registry
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Legal Process Overview
Sales / Transfer out
Decision to sell.
Solicitor collects Information on title and replies to enquiries. Utility bills, rates bill. Rent history. Asbestos survey EPC Planning Permissions. Drafts contract.
Buyers solicitor carries out searches and checks title. Buyer gets mortgage and arranges insurance
Exchange of contracts. Details of amount needed to pay off borrowing obtained If the Property is let rent details obtained.
Completion
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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
Simple Property Purchase Case Study
Green light for purchase RICS surveyor values property at £180,000 with
annual rent of £15,000 The property is not subject to VAT
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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 £72,000
£720
Mrs Clarke £108,000 £1,080
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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.
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Simple Property Purchase Case Study
Property account
Landlord property expenses
Tenant rental: £15,000 p.a.
Rental income paid to
members individual SIPP bank accounts
Mr Clarke 40%
£6,000p.a.
Mrs Clarke 60%
£9,000p.a.
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Poll Question
Healthcare sector Financial services Manufacturing / engineering Retail Construction Hotel & leisure
What type of clients do you have?
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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
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Multi Member Purchase with Exit Strategy
Mr Smith Personal Pension
£95,000
SIPP assets Property of £125,000 Cash of £14,000 VAT reclaim £25,000 Total assets £164,000 Mr Smith 55.88% Mr Jones 44.12%
VAT (£25,000)
Joint SIPP Trustee Bank Account
£170,000
Mr Jones Personal Pension
£75,000 Fees
(£6,000)
Purchase Price
(£125,000)
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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.
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Mr Smith Rent income
£6,510 pa
Mr Smith Annual
contributions £10,000 pa (gross)
Mr Smith Cash fund now
£95,000 Property now valued at
£175,000
Mr Smith £95,000 cash
£97,790 property
Mr Jones £30,000 cash
£77,210 property
Mr Smith £17,790 cash
£175,000 property
Mr Jones £107,210 cash
Mr Jones Takes PCLS & drawdown
funds
Five years’
Growth
Members exchange cash for assets
Multi Member Purchase with Exit Strategy
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Poll Question
Already do Extremely likely Likely Unlikely Extremely unlikely
How likely are you to consider using a SIPP as a business succession planning tool with clients?
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Mr & Mrs Thomas, directors of Accountant.com Ltd based in Swansea, are interested in paying a one-off contribution into their pensions
The business is not cash rich, but faces a high corporation tax bill at the end of the financial year
They are considering making an in specie contribution of the company premises into the members’ SIPPs
The property is 100% owned by the company & there is no outstanding mortgage on the property
The property has been independently valued at £120,000 VAT does not apply in this case
In Specie Contribution Case Study
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In Specie Contribution - Legal
Setting up the Legal Debt paperwork Is anyone selling anything? Why do the Member/s and Xafinity need solicitors? What legal work is needed? Why is so much legal work needed? What can IFAs do so help the legal work conclude as quickly as possible?
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In Specie Contribution Case Study
Mr Thomas SIPP Bank Account
£20,000
Mrs Thomas SIPP Bank Account
£20,000
In specie contribution
£60,000
In specie Contribution
£60,000
Joint SIPP assets Property £120,000 Bank Account £40,000 Split: Mr Thomas 50% Mrs Thomas 50%
Rent £6,000
Rent flowing back to the individual SIPPs
Rent flowing back to the individual SIPPs
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Outcomes
The company no longer owns the property
The company accountant can use the contribution to reduce tax liabilities
The company then leases the property from the Joint SIPP at a commercial (‘arm’s length’) rate of rent under a formal lease
The scheme receives this income as “investment growth” can be invested under the guidance of the financial adviser.
In Specie Contribution Case Study
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Poll Question
1. Yes, when the situation arises you are confident you could recommend this
2. Perhaps, but you would need SIPP provider support
3. No, unlikely to ever recommend
Would you consider recommending an in-specie contribution SIPP/Property to a client?
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Property Developments Should appoint a Quantity Surveyor Enter into a legal agreement, usually through a Joint Contracts Tribunal
(JCT)
VAT Stamp Duty (Land & Buildings Tax)
TOGC Joint purchase with 3rd parties SEEK EXPERT GUIDANCE
SIPP Borrowing Residential & planning permission - permitted Holiday lets & B&Bs – not permitted
http://www.hmrc.gov.uk/manuals/ptmanual/ptm125200.htm
Other Considerations
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Property – long term investment
Established businesses out there who could benefit
Symbiotic relationship pension scheme and employer
Should create liquidity for further investment
Adviser remuneration – initial and fund based available
Experience there to assist you and your clients
Conclusions
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Voting buttons – what would you like to learn more about:
Simple property purchase Joint purchase In specie Environmental checks Solicitor relationships VAT Residential Other – please specify Nothing
Further information
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Recording will be available at ... Will forward CPD along with Q&A by email in next few days All of speakers available as are our BDMs
Thank You
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Jeff Steedman Head of SIPP / SSAS Business Development Jeff.steedman@xafinityconsulting.com Contact Number: 07989 627767
Graeme Melville SIPP / SSAS Senior Technician Graeme.melville@xafinityconsulting.com Contact Number: 01786 237036
Sonyia Woolnough Partner Bevirs Solicitors Sonyia.woolnough@bevirs.co.uk Contact Number: 01793 848900 (Ext 230)
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