SUMMARY FROM YOUR CHATBOT:
You have (or will have!) a SSAS and are buying a Residential Property from the Sponsoring Employer of your SSAS. The key to this purchase is that you are seen as a ‘connected’ buyer and so there needs to be an independent 3rd party valuation in order to ensure that the SSAS Trustees are paying the right price for the property. It cannot be ‘made up’ by you simply to fit with the plans you have or to reduce taxes on the sale!

Your aim for this purchase is to convert the property into Furnished Holiday Lets (FHL) which you will then rent out (rather than sell). All the money you need for this deal is sat in your SSAS (or will be once you establish one!).

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?
No! As you are buying a residential property – it falls foul of the SSAS rules no matter what you are going to convert it into! But once converted you may be able to get the local Council to change the use to ‘commercial’ C1 – in which case a SSAS would be able to own it. But that isn’t a help really as you need to buy it first!!

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 a ‘residential’ property – as a GDCV is a specific exemption that allows residential property to be held within a SSAS.

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 an income to ‘manage’ the property in addition to the cost of works mentioned above – meaning you could end up with an income from your SSAS without having to ‘retire’ or take benefits.

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 these 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 converting the original residential house into the FHL – 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!

Having all the money available in the SSAS removes any of the issued related to SSAS Borrowing. (The GDCV or REIT can borrow as much as a lender will lend and is not restricted to 50% borrowing which applies to the SSAS).

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!)

SDLT Note:
If your business that is selling the property has the same owners (Directors/Shareholders or Partners) as the SSAS has Member Trustees – then the property purchase is between connected parties and there is an exemption to SDLT that can be applied. This is specialist work and is carried out by our SDLT partners. In simple terms the SDLT will be reduced to zero with a cost of advice being paid instead of SDLT. The saving being approx 75% of the SDLT that would have been paid.

We will hand hold you through this SDLT planning and assist with the introductions as needed.

CONVEYANCING NOTE:
As you are buying from a ‘connected’ party, the Solicitors doing the conveyancing will need to have 2 offices – one to represent the SSAS and one to represent the seller – so if you want to use a Solicitor who is fully up to speed on ‘SSAS & Connected Party’ – we can point you in the right direction. The Solicitors we use have a London Office to look after the SSAS and a Manchester Office to look after the connected company seller. Everything is tidied up and there is no conflict of interest – which would be the case if using 1 Solicitor in 1 office.

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.