Commercial property purchase case study

Mr & Mrs Williams run a successful florist as a partnership from a busy rented high street location.

They have outgrown the existing premises and are now considering purchasing their own business premises. They have been advised that they can use their pension funds to achieve this.

The facts

• Mr & Mrs Williams each have £100,000 in their existing personal pensions
• The proposed shop is valued at £240,000 which can be purchased using their personal pension funds
• They will each need to establish a full asset Dentons SIPP
• Their SIPPs can each borrow up to an additional £50,000 being 50% of the net value of their respective SIPPs. This can be used to meet the purchase costs and other associated commercial property purchase costs such as solicitor and surveyor fees, stamp duty land tax (SDLT)  in England and Wales, and land and buildings transaction tax (LBTT) in Scotland, and VAT, if applicable.

The process

• After searching for a SIPP enabling commercial property purchase, Mr & Mrs Williams contact Dentons and are asked to complete their Commercial Property Questionnaire
• Dentons checks the details to ensure the property is acceptable and there are sufficient funds to cover the property purchase and associated expenses
• They each establish a Dentons SIPP and arrange for the funds from their personal pensions to be transferred
• Dentons sends instructions to the solicitor named on the Commercial Property Questionnaire who is to act for the SIPP Trustees
• Mr & Mrs Williams need to arrange a valuation from a surveyor to confirm the market rent that will need to be paid; the surveyor must be a Registered Valuer of the Royal Institution of Chartered Surveyors (RICS), who is either a Member (MRCIS) or Fellow (FRICS). Their rental valuation opinion should comply with RICS professional standards
• Mr & Mrs Williams arrange commercial mortgages through their bank which will help to fund their property purchase. Had their circumstances permitted, the SIPPs could have borrowed the funds from a connected party such as Mr & Mrs Williams personally and/or their partnership, provided that this was done on demonstrably commercial terms
• Once the 30-day mandatory transfer cancellation rights period has expired, the funds in the SIPP, along with the agreed mortgage loan, can be used to complete the commercial property purchase
• The solicitor draws up a commercial lease for the rental of the florist shop to the partnership
• The SIPPs then pay for the property and associated costs.

The result

• Once in the commercial property Mr & Mrs Williams partnership pay the rental income to their SIPP which is applied to each SIPPs cash account on a 50:50 basis and is used to pay off their respective mortgages.
• The joint property acquisition is structured through a Declaration of Trust with the document recording the ownership split
• Mr & Mrs Williams can use their own solicitor or surveyor
• They can also manage their own property
• Purchasing their own business premises provides tax efficient arrangements for Mr & Mrs Williams
• Once the mortgage is paid, the ongoing/surplus rent and contributions continue to build the retirement fund and can be used for other investments and to pay benefits when the couple wish to retire.