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Self Invested Personal Pension (SIPP)

publication date: Nov 27, 2008
author/source: Mike Hymanson
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Mike Hymanson is a property specialist and partner at law firm Lewis Hymanson Small. He believes that estate agents could benefit from having a better grasp of what a SIPP is and what it does.

Although acting as a finance broker is outside their remit - unless they are recognised by the FSA - every estate agent has well established connections with local banks and building societies. Making introductions to potential sources of property acquisition finance has always been part of the estate agent’s function.

But as the number of mortgages on the market continues to plummet - the credit crunch has reportedly reduced the number mortgage products available from over 14,000 to less than 3,000 - perhaps it’s as good a time as any for agents to increase their armoury of financial weapons.

For many clients, particularly selfemployed business people, company directors and business ownermanagers, a Self Invested Personal Pension (SIPP) is an excellent tax efficient vehicle for property acquisition.

The principle behind a SIPP is you can make a better job of enhancing the value of your pension contributions by investing the money yourself, as opposed to leaving the job to some anonymous fund manager. The erratic performance of the stock markets in recent times has meant that many people’s expectations of the ultimate value of their pension on retirement have not been met.

A SIPP gives them the choice and opportunity to invest in assets over which they have a greater measure of control, such as a residential or office property which may be let to the SIPP owner, his business or a third party.

If someone acquires a property through their SIPP pension fund, they have the greatest possible control over the conduct of the tenant. Rather than making mortgage repayments or pension contributions to an anonymous financial institution they’ll actually be contributing to the value of their own personal pension as the years go by. The appreciation in the property’s value will also accrue in part to them and in part to their pension. It’s an attractive idea.

Some developers are actually building new properties specifically with this process in mind. Nikal Developments in Manchester, for example, has already released its first SIPP-specific office building, MyBuro in Cheshire with considerable success. Suites have been snapped-up by business owneroccupiers and Nikal have several more developments on the drawing board around the country.

The idea has been a big hit with the owners of SMEs and professional firms.

Despite its success, most estate agents still have scant, if any, knowledge of SIPPs and even less idea about the direction in which to point clients for whom this might be the ideal answer. Their first port of call needs to be a professional advisor. Setting up a SIPP can be rather time-consuming and complex, so vendors might have to wait a little longer than usual for completion.

If the customer already has a pension plan in place it needs to be converted into a SIPP, operated by appointed trustees. The pension fund can then act in a way similar to a corporate entity. For example, it can become VAT registered and buy and sell assets on the instructions of the person whose SIPP it is, and take out a loan or enter a mortgage arrangement, at the discretion of the trustees.

There are strict rules and limits to the amount that can be contributed in any single tax year and the kind of assets you can acquire. Vintage wines, classic cars, art and antiques are prohibited, while the acquisition of residential property is subject to strict rules.

The transaction will almost certainly require cooperation between the respective parties solicitors, accountants or financial directors, Independent Financial Advisers, mortgage brokers, insurance brokers and surveyors. It’s easy to see how completion times can be delayed.

There is a SIPP providers’ organisation, known as AMPS, which offers helpful advice for advisers to receive further information.

Obviously a great deal will depend on the circumstances of the individual customer. However, as the MyBuro development has proved beyond doubt, there are circumstances in which acquiring a property through a SIPP scheme is highly attractive to business and professional people.

In difficult times, with property prices actually falling in some areas, any method of opening up the possibility of a sale that might otherwise be lost is worth knowing more about, in my view.

My advice to estate agents is to do your homework and keep the SIPP sales stratagem up your sleeve. You never know when it might just clinch a deal.

Mike Hymanson can be contacted at