SUMMARY FROM YOUR CHATBOT:
You have (or will have!) a SSAS and are buying a plot of land from an independent 3rd party.

Your aim for this purchase is to develop the land and build residential property which you will then rent out (rather than sell). As all the money you need for this deal is sat in your SSAS (or will be once you establish one!) – you will not have to borrow any money.

One really important factor with property planning using a SSAS is that of ‘trading’ – if your SSAS intends to buy, refurb, develop etc then sell – that is a ‘trade’ – which would trigger a tax charge on the profits of the trade. I guess if this were allowed almost everyone would use their SSAS to run a business and no Corporation Tax would ever be paid! So no matter what you want to do, if your intent up front is to buy in order to do stuff then sell – there is a risk of a tax charge. However using a GDCV or REIT turns these activities from a ‘trade’ into an ‘investment’ as the SSAS simply holds units or shares and all of the ‘activity’ falls into the GDCV or REIT. This can sometimes make all the difference to the property planning, rather than simply looking at the type of property and what you want to do with it. We have added this note to all reports regardless of what is or is not ‘allowed’ in terms of property ownership in the SSAS.

IS THIS ALLOWED IN A SSAS?
Buying land with a SSAS is allowed under the Pensions Rules, so at outset you are OK. Spending money paying a 3rd party developer to undertake the building work is also allowed. But there are a number of issues you need to be aware of as holding ‘residential’ property in the SSAS is not allowed.

One of the first issues is ‘trading’ – a pension is not allowed to be a business and run a trade – otherwise there would be no UK Corporation Tax paid as everyone would simply operate as a pension! It is important therefore that the SSAS does not end up buying and selling land and property such that it would be seen as a ‘trade’.

The other big issue relates to ‘residential’ property – once your development site reaches the point where the property being built has a habitation certificate it is 100% ‘residential’. There are also some who suggest that once a kitchen and a bathroom have been installed, the property becomes ‘residential’. 

However, you might like to consider using the SSAS funds to buy units in a Unit Trust – which is defined as a ‘Genuinely Diverse Commercial Vehicle’ or GDCV under the Pensions Laws. This Unit Trust is a special one – and it would allow you to buy land and build a ‘residential’ property – as a GDCV is a specific exemption that allows residential property to be held within a SSAS.

The Unit Trust is allowed to borrow as much money as anyone will lend to it – there are no restrictions or 50% limitations. The rule of thumb is to image that the borrowing is being done by a UK company where you are the director and shareholder – and ask mortgage lenders how much they would lend based on the SSAS money being in this company as the ‘deposit’. (The actual details will be clarified once you have established your GDCV, but this is a good ‘guide’).

The unit trust company would earmark your investment in such a way as to allow your units to be valued based on your property purchase and not that of anyone else. It is a bespoke and individual structure that is formed on request and allows 100% of your SSAS funds to be turned into ‘units’ – while the money itself becomes you own property development ‘pot’ – with none of the usual restrictions associated with residential vs commercial property. If this is something that is of interest – please mention the GDCV when you speak to us (book a call link below).

The costs are extra to the SSAS establishment Fees – as this work is done by an independent 3rd party. What is clear is that the costs are a lot less than the 55% tax charge – and a price worth paying to remove the worry that you may fall foul of your property being seen as ‘residential’ by HMRC!

The GDCV could pay you all of the cost of works mentioned above – meaning you could end up with an income from your SSAS without having to ‘retire’ or take benefits.

A GDCV can also ‘trade’ – so the structure takes that risk away – as the SSAS will only be getting ‘investment’ returns based on the value of the units (which would increase as you sell the residential property).

Following the Budget in March 2023, the Lifetime Limit has been abolished – meaning that you are free to build a pension fund of any size. Sadly the tax free cash element (the Pension Commencement Lump Sum) is STILL limited to what was 25% of the £1.07m Lifetime Limit.

Some people have the view that a Government of a different political leaning may re-introduce the Lifetime Limit – so putting planning in place to cover this might still be worthwhile. The following notes are therefore out of date based on the Budget – but still may be of interest to those with longer term plans:

If you are concerned about the LIFETIME LIMIT being reintroduced – then you can use a REIT (Real Estate Investment Trust) instead of a GDCV – as this is a company structure where the profit can be structured so as to fall into a QNUPS (Qualifying Non UK Pension Scheme) – which is exempt from the Lifetime Limit charges. If you have a fund in excess of £500,000 and cannot spread the ‘growth’ amongst family members, then please mention this in our conversations as the REIT may well be a better option than the GDCV. (Both allow Residential as well as commercial but the REIT cannot trade and flip properties, as it is for holding them long term – 3 years plus. The GDCV can flip as well as hold!). 

As with all things ‘SSAS’ – we have a specific video on GDCV’s and REITS too. (Look for Masterclass Video 6 – a copy of which is at the bottom of this page for you.)

ALTERNATIVE OPTIONS ON OFFER: 
There are a number of SSAS Administrators and Trustees offering alternative solutions – such as setting up an SPV or a holding company – all with the aim of allowing the SSAS to invest into what is in effect ‘residential’ property. They use a LOAN BACK from the SSAS to these different companies, or write a document that says that the SSAS will never be given the property if the loan is defaulted upon (because someone will sell the property and pass the money back to the SSAS).

Whilst these may seem plausible and lawyers can suggest that they are ‘correct’ – there is an issue with trying to be clever and work around the rules.

The Pensions Act is very clear that ‘direct’ AND ‘indirect’ ownership of residential property is not allowed. The Law also refers to not just actual ‘ownership’ but also ‘interest in’ – which opens up the opportunity for HMRC at a Tribunal to argue that all these layers are simply your SSAS trying to have an ‘interest’ in the residential property all along. 

We see all kinds of debates online from so called ‘experts’ – but in the end they miss the whole point:

HMRC have introduced clear anti-avoidance rules for a whole raft of other areas of tax. These rules clearly refer to ‘steps’ which mean HMRC will basically look through all the layers and SPV’s and Holding Companies – as the end point is that your SSAS has indeed got an ‘interest’ in a residential property. Case closed – HMRC win the case in Court etc etc. You pay the costs and you pay the tax. Even if you WIN – the stress and pressure that comes with an HMRC investigation and drawn out fight cannot be underestimated.

The Pensions Act also specifically gives exemptions to GDCV’s and REITS – so why would anyone want to take the risk of a fight with HMRC with smoke and mirrors – when there is a perfectly good pair of solutions that are written into the Pensions Act! Many of the ‘experts’ are not giving advice and their ideas are based on their personal opinions, not personal experience with HMRC.

Whilst nothing within this report is to be taken as ‘Advice’ – I personally have decades of experience in Tax Planning – and HMRC’s methods of tugging on a thread and undoing all the layers and structures people have tried to construct to get around the rules. Setting your SSAS up for a 55% tax charge based purely on someone’s opinions is nothing I would want to do personally (I have my own SSAS).

Sleeping at night by using a specific exemption written into the Pensions Act seems like the better approach to me as a SSAS Administrator/Trustee.

No loans need be written up either – so making the process safer still. If HMRC ask – your SSAS has bought units in a bone fide unit trust that HMRC have approved – or it has bought preference shares in an actual REIT that is recognised by HMRC as such. 

ADDITIONAL NOTE:
If you want to pay one of your own companies (or an LLP) to do the work in building the property – then the GDCV/REIT can be given a quote for the works and the GDCV/REIT can check that this quote is ‘reasonable’ and fully commercial (i.e you cannot beef up the costs in order to extract money from your SSAS before retirement!). If the works are accepted – then it is perfectly acceptable for the GDCV/REIT to pay you for doing the work as it is what any ‘unconnected’ builder/developer would be charging.

In this way you can earn a profit on the works and pay tax on the profits just like any other business. But it means you will have an income from your GDCV/REIT – as they will be one of your ‘property development’ customers!

All rent and gains on sales will be tax exempt as the investment is held within a SSAS Pension. The only exposure to tax will be the profit earned on any refurbishment works carried out by you individually or carried out by your own property refurbishment business.

(It should be noted that no Member or Trustee or connected person can rent out this property!)

WHAT NOW?
If you want to establish a SSAS – there is a complete SSAS Establishment guide in the link below. All the documents and costs are explained in full. There is even a video that takes you through the entire process so you know what to expect.

If you run a profitable business and want to discuss your specific needs – before committing to a SSAS, then please book a free call with us – so we can assess your situation properly and make sure your plans will work for a SSAS. The booking link is also below.

Thank you again for your time in using our SSAS Property Chatbot – we trust it was a useful tool.