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Thank you for working your way through our SSAS PROPERTY CHATBOT – before you read the report below, please bear in mind that this is not to be taken as any form of ‘advice’. The report is for information purposes only and there may be specific technical details within your personal and business circumstances that changes the report’s findings.

If you want to arrange a FREE Tax and SSAS Consultation with the creator of this SSAS PROPERTY CHATBOT – please feel free to do so using the link below.

NOTE: Anyone with an existing SSAS Provider (i.e Professional Trustee, Administrator or Practitioner) may not have access to all of the solutions mentioned within this report. If that is the case – then you may wish to speak to Segmented Solutions about them taking on the ‘Practitionership’ of your SSAS. We do not offer a TRUSTEE or ADMINISTRATOR service – as we believe you should have total control and flexibility within your SSAS. All whilst having the support of an technically experienced Pensions Professional who acts as your Scheme Practitioner.  

You have (or will have!) a SSAS and are buying a Commercial Property from an unconnected 3rd party. This means that the property is actually classified as ‘commercial’ at the local Council – rather than being a residential property that just happens to contain a ‘business’. Classification of C1 for example is ‘commercial’ but C3 or C4 may mean the property is not actually ‘commercial’ in pensions terms.

By an unconnected 3rd party we mean a seller where there is no formal connection – you are not a Director or Shareholder (or Partner if an LLP).

Your aim for this purchase is to convert the property into Furnished Holiday Lets (FHL) which you will then sell (rather than rent out). As not all the money you need for this deal is sat in your SSAS (or will be once you establish one!) – you need to borrow additional money to get the deal finalised.

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.

As this is a commercial property there are no issues with it being purchased inside your SSAS – the purchase costs and the conversion costs can all be met from the SSAS fund (once you have borrowed some more!) and any rent received will be tax exempt as the landlord is a ‘pension’. As far as your SSAS is concerned your ‘FHL’ will be classified as a mini-hotel where individuals come to stay in a commercial building, rather than it being classified as ‘residential’. 

However you could come unstuck if you asked the local Council to change the use from whatever it was previously (commercial) into Furnished Holiday Lets, as they may change the classification into RESIDENTIAL – which is a big problem for your SSAS as residential property is not allowed!

It will be worth your while doing some local research into how the local Council deals with Furnished Holiday Lets, as the Council requiring a change of use may mean that the property ceases to be ‘commercial’ and therefore could trigger a large tax charge for the SSAS if the asset becomes defined as ‘residential’.

C1 – Commercial =OK.
C4 – Residential = NOT OK.
Sui Generis – Could be seen as Residential if people are living there long term and the property could be used as a home = MIGHT be an issue but this is really low risk as you’d have strict limits on how long people can stay… as you are a mini-hotel and not an HMO!

Whilst Furnished Holiday Lets with a C1 classification is totally fine in a SSAS – If you are concerned about these issues and the risks of getting an un-authorised payment tax charge (55%) should your plans change and you end up with an HMO – then 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 commercial property and change it’s use to ‘residential’ – 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).

There is no obligation to set up this additional structure, but it does remove the ‘risk’ that a ‘Sui Generis’ classification or a ‘C4 classification’ might result in HMRC viewing this investment as ‘residential’ – even taking into account that the purchase was fully commercial at the time of completion.

If your plans change and you decide upon an HMO and are required to get a ‘habitation certificate’ and change the use – then there is a 99% probability that your plans to run a FHL or HMO will find themselves in trouble – solved in full by the use of the GDCV to hold the property.

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 or flip properties, as it is for holding them long term – 3 years plus). The GDCV can ‘flip’ as well as ‘hold’, but will simply add to a Lifetime Limit issue if large fund sizes are grown and there are no additional Members available to receive the growth.

As with all things ‘SSAS’ – we have a specific video on the GDCV and REIT too. (Look for Masterclass Video 6)

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 could in effect become ‘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 are 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 shares in an actual REIT that is recognised by HMRC as such.

One of the more common ‘solutions’ offered to the whole ‘residential’ vs ‘commercial’ debate is to suggest that the SSAS can buy the ‘commercial’ property, then re-finance the whole project just before the property becomes ‘residential’, so that some other structure buys the property from the SSAS to avoid it ever holding anything that could be deemed to be ‘residential.

This of course sparks further friendly debate amongst the experts too. Does this mean to raise funds and sell when there are kitchens and bathrooms installed – or is it at the point where the Council has granted a ‘habitation’ certificate? Which expert do you want to trust in this debate, or would you prefer an HMRC pre-accepted and well trodden solution? I know which I would prefer!

The timing of course is irrelevant if using a GDCV or REIT – and the massive finance costs involved are avoided too.

In fact in many cases the GDCV is cheaper than the finance costs – and comes with a cast iron guarantee that the SSAS will never own anything that could ever be seen as ‘residential’, as it simply owns units in an exempt structure (or shares in a REIT) – both of which are specifically mentioned in the pensions act and allowed.   

A SSAS can borrow upto 50% of its own value – meaning that a SSAS with £300,000 in it can borrow a total of £150,000 (i.e 50% x £300,000) – giving it a total available fund for the purchase of £450,000.  The lender to the SSAS can be a mortgage company, or indeed anyone who is willing to lend at the time. There is nothing wrong with the Sponsoring Employer lending money to the SSAS if it is unable to make ‘contributions’ to bring the SSAS fund up to the required value.

Obviously there is no tax relief on the interest charged – as the SSAS pays no tax (!) – but any rent received is tax exempt as the landlord is a ‘pension’.

If the Sponsoring Employer lends to the SSAS and charges interest, then the interest will be taxed as income in the hands of the business. Alternatively if an individual Member wishes to grant a loan IN to the SSAS – that too is allowable as long as the 50% maximum loan is not breached.

We do have a video that explains SSAS lending and borrowing. It is part of our SSAS Masterclass series and is on our home page and YouTube channel. There is a link to the page which contains all the videos at  the bottom of the page. The specific video you want to watch is Part 2 of the Masterclass series.

However if you use a GDCV or REIT as the structure for your property deal(s) – these are not restricted in terms of their borrowing. So the SSAS example earlier where it had £300,000 will not be restricted to £450,000. A lender may well allow a 60% mortgage – meaning that the £300,000 is now simply the ‘deposit’ with the lender allowing a further £450,000 as a mortgage, which means the ‘pot’ is now worth £750,000 rather than £450,000. 

If you want to pay one of your own companies (or an LLP) to do the work in converting the original commercial unit into the Furnished Holiday Let – then the SSAS can be given a quote for the works and the Scheme Trustees 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 by the SSAS Trustees – then it is perfectly acceptable for the SSAS 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 SSAS – 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.

If the commercial property has been ‘opted for tax’ – this will mean that the SSAS will have to pay VAT on the purchase price, with SDLT calculated AFTER VAT has been added. As the plan is to make a HOLIDAY LET – where people stay for LESS than 28 days – the ‘rent’ would also need VAT to be added.

The process whereby a SSAS gets a VAT number is different to other ‘trades’ – because a pension cannot trade!

Some accountants and VAT advisors can be uncomfortable with this SSAS specific process – which is why Segmented Solutions Limited offers a ‘SSAS VAT REGISTRATION’ service (£500 + VAT). This includes the VAT Registration and support with setting up any software needed for submitting VAT returns under the ‘Making Tax Digital’ regime. (A SSAS does not have a UTR like a company or an individual, so the software itself needs to deal with this issue – hence our SSAS service is often required at this point too).

BUT (!) – If you are buying the property and are 100% converting it to ‘residential’ – such as in an HMO – then there is an exemption to VAT on the purchase, which would also reduce the SDLT. So sometimes it is worth exploring all your options as there may be an alternative approach. This approach would of course require the use of a GDCV or REIT as residential property is not allowed in the SSAS without using these specific exemptions.

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.