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)