City Trustees - part of Mattioli Woods

News and Media

15 July 2014

Warning - unauthorised payments in SIPP or SSAS property

A large proportion of our clients hold direct commercial property within their SIPP or SSAS which provides great advantages, both from a tax and a retirement savings perspective. However, one of the greatest risks with property is the tenant, since the large majority of clients are directors or owner managers whose business trades out of the premises.

'Connected' property purchases

The transaction is relatively simple if rules set by HMRC are adhered to. Where the pension scheme is purchasing a property from the member, or the company of which the member is a Director, the transaction is deemed to be 'connected'. This means that the purchase of the property and all rent payments must be on a commercial basis, so that HMRC are happy that there is no value shifting.

When we discuss 'connected' property purchases, we make it clear from the outset that the purchase must remain commercial, starting with an independent market valuation to confirm the purchase price. It is important to note that the pension scheme buying a property will only truly work as an investment for the scheme if rent is paid, thus providing an investment return.

'Unauthorised' payments

In instances where the purchase is 'connected' and rent is not paid, then this could be deemed as an 'unauthorised' payment if the transaction is not maintained on an arm's length commercial basis, it would subsequently need to be reported to the HMRC

In these circumstances, as a Trustee we would pro-actively work with the connected tenant and their accountant to find and appropriate solution to ensure the transaction maintains commerciality, and keeps within the prevailing legislation. However, this is not always the case for a number of other providers.

A client who transferred to City Trustees from a 'mass' market provider who has filed for administration found that the rent was not paid on his property and his scheme had generated arrears. The client was actually paying a minimal rent on an ad-hoc basis and had contacted us because the SIPP had just paid a scheme sanction charge of 15% of the unpaid rent to HMRC. As a SIPP is reported on a yearly basis and there was still unpaid rent, it was about to occur again for the year 2013/2014.

The client was frustrated on two counts; firstly, the lack of communication as to why he had to pay the charge and, secondly, there was no support or advice to offer a solution.

City Trustees solution

In order to maintain the arm-length commercial basis, we immediately put in place a rent repayment schedule which was affordable for the clients business in its current financial position.

The rent payment schedule was fully in line with pension rules, as the scheme was charging a commercial interest rate.

Our position in the marketplace is not to compete with low-cost schemes due to our bespoke offering and high service standards in administration. 

We are experts in our field and, as a provider of our schemes as well as administrator and trustee, we provide a proactive service for clients, working alongside IFA's to fully understand HMRC rules.

For IFAs, City Trustees also operates a free technical helpline for support with pension challenges. Tel: 0116 240 8731 or email: today.


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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.