City Trustees - part of Mattioli Woods

News and Media

14 January 2013

When should a pension scheme register for VAT?

There are two common reasons for registering a self-invested pension scheme for VAT with HM Revenue & Customs.

The first and most common reason to register is when a scheme purchases a property that has previously been opted to tax by the vendor. In these circumstances VAT would normally be paid on the purchase price, and if the scheme has registered for VAT and opted to tax the building, the VAT charged by the vendor could be reclaimed from HM Revenue & Customs and returned to the scheme.

The second reason for registering would be if substantial development work were to be carried out either on a property being purchased that has not previously been opted to tax, or a property already held within a self-invested pension scheme, again which has not been previously opted to tax. Many contractors are VAT registered and will charge VAT on their goods and services during development work. The member(s) of the pension fund may decide that the total VAT to be paid is high enough to justify registering the scheme for VAT and opting to tax the property. If the decision is made to VAT register, the scheme would normally be able to reclaim the VAT charged by the contractors throughout the development work.

Once a property has been opted to tax, all rent (or any future sale proceeds) charged for that property must include VAT (currently the standard rate is 20%). This can reduce the market for potential tenants or purchasers and opting should be considered carefully by the members and their advisers. Often property owned within self-invested pension schemes will be occupied by the member's company which will be responsible for the payment of the rent and VAT if the property has been opted; if a tenant company is VAT registered it can normally reclaim the VAT it has been charged on the rent through its own VAT return.

Once a scheme is registered for VAT, the scheme must complete quarterly VAT returns and pay any VAT received in the scheme to HM Revenue & Customs. Normally the responsibly would fall to the member of the self-invested pension scheme. The VAT return is normally completed through an individual online registration on HM Revenue & Custom's website. Payments of the VAT can be made by BACS, cheque or more usually by direct debit - direct debit allows HM Revenue & Customs to take the total VAT due directly from the pension scheme's bank account.

Reductions of borrowings

When borrowings are required to aid purchasing a commercial property, factoring the VAT requirements in to the calculations will be vital. A client of mine recently purchased a commercial property where VAT was due on the purchase price. The value of the property was £400,000 (ignoring stamp duty land tax) and the VAT payable was £80,000. The scheme obtained a commercial loan of £150,000 for the purchase of the property taking into account the VAT payment (which was within the scheme borrowing limits). Once the VAT was reclaimed by the scheme (which usually takes six to eight weeks to reclaim), £80,000 went directly into the scheme bank account. This significant amount of cash could then be used to accelerate repayment of the loan.

Transfer of Going Concern

In certain circumstances, funding the additional VAT can be avoided. Purchasing a property through a registered pension scheme which already has a tenant can be classed as a 'Transfer of Going Concern', which essentially means that no VAT is to be paid on the purchase price. If the tenant remains the same, however, it is paramount to declare this to both the pension provider and the solicitor from the outset of the purchase.

City Trustees can arrange VAT registrations for a self-invested personal pension plans as well as completion of quarterly VAT returns. If you are interested in this service, please send us an enquiry of call 0116 240 8730.

John Glover, Business Development Consultant


< Back to News


City Trustees is a trading name of Mattioli Woods plc. For news updates on the Group, please visit our central News & Media on the Group website.