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Technical View

Technical View June 2016


In this month’s Technical View we look at a recent tax change that could have a positive impact on a SIPP considering the purchase of commercial property.

So, is it a good time to consider commercial property as a SIPP investment?


Maybe…

One of the less talked about provisions announced in the 2016 Budget was the change to Stamp Duty Land Tax (SDLT) on commercial properties. This was introduced with immediate effect following Budget day on 16/3/16. In brief:

Stamp Duty Land Tax (SDLT) changed from 17/3/2016 as follows:

  • Move from threshold tax to tiered tax
  • SDLT rate remains at zero for property values up to £150,000
  • Reduced SDLT for properties valued between £150,001 and £1,050,000 (VAT is included when calculating SDLT (tax on tax)

The Government state that 76% of freehold and certain leasehold transactions will pay less SDLT **
 
**This is taken from the Q&As in HMRC’s SDLT: reform of structure, rates and thresholds for non-residential land transactions 

Pre and post 17/3/16 comparison for freehold properties

 
Purchase Price Pre 17/3/2016 SDLT Post 17/3/16 SDLT Saving
£150,001 £1,500 nil £1,500
£250,001 £7,500 £2,000 £5,500
£300,000 £9,000 £4,500 £4,500
£500,001 £20,000 £14,500 £5,500
£1,050,000 £42,000 £42,000 nil

 

Figures calculated using this external website www.tax.service.gov.uk/calculate-stamp-duty-land-tax

Potentially this adds to the opportunities where commercial property is held as an asset within a SIPP. Points for advisers to consider include:
 
The ability for a SIPP to hold a commercial property as an asset during both the accumulation and decumulation phases of a client’s pension arrangement. Added to this it may be possible to pass this asset down through the generations by means of a beneficiary’s flexi-access drawdown arrangement. 

  • Falling stock markets & increased volatility could make tangible assets with a robust income, such as property, more attractive.

  • Tax breaks on residential buy to lets will be restricted from April 2017.

  • Second homes are now subject to an additional 3% SDLT from April 2016

  • As property is an illiquid asset, thought should be given to an appropriate strategy for liquidating the asset in retirement or upon death. 

So, it may be time for some clients to consider commercial property as a pension fund asset given the above together with the added advantages, such as: 

  • rental income accumulating tax free, which may service a loan or income withdrawals 
  • potential to release capital back into business
  • protection of property from creditors 
  • no CGT to pay when the property is sold
  • does not form part of the client’s estate for IHT purposes


Indeed, the ability and capability of SIPP providers to offer commercial property as an asset may be a key difference between SIPP providers; especially as part of any adviser’s increased due diligence on SIPPs with the impending introduction of the FCA's capital adequacy requirements from September 2016. More information on this can be found in our latest Specialist View.

We at Sanlam are very proud of the expertise and service of our Property Team in what continues to be a bespoke and complex area. 
 
More information on holding commercial property as an asset of a Sanlam OneSIPP can be found here.  
 

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at June 2016 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.
 
Past performance is no guarantee to future performance. The value of investments can fall as well as rise so investors could get back less than they invest.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.