City Trustees - part of Mattioli Woods

News and Media

11 February 2015

Pensions Perspective: How do you deal with borrowing when purchasing a property at auction?

This question came about as a result of a recent Pensions Perspective, and concerned the use of borrowing when purchasing property at auction.

Within a pension scheme environment, as indeed any environment, it is extremely difficult for purchasers to be able to complete within the timescales required by the auction house if borrowing is needed. If a pension scheme is a successful bidder at auction, but then fails to complete due to insufficient funding, the pension fund will be liable for all costs associated with the failed bid.

Many of us have experience of clients or friends who have been in a situation where bank borrowing has been provisionally agreed, but on further analysis the bank has created caveats or refused to lend on a certain property. The pension scheme should not go to auction and make a bid if the borrowing is not already in place. This does make it very difficult if the pension scheme is looking for borrowing from a bank, as the bank will require, in most cases, stringent financial checks including formal property valuations and details of the tenant.

While consideration may be given as to whether the pension scheme has the capacity to create security on other properties or assets held within the pension scheme, the pension scheme does not need to borrow from the bank. Borrowing can be from any source, for example, a corporate loan or a personal loan to the pension scheme. Looking at corporate or personal borrowing can offer more flexibility, although any connected loan transaction should be completed on a commercial basis or tax penalties would be incurred.

If the pension scheme receives borrowing from other sources, it would also be possible for the borrowing to be refinanced once the auction property is in the pension scheme.

Avid fans of Homes under the Hammer will know that it is advisable to view the property's legal pack prior to purchase. One area where this is vital is when establishing whether the commercial property you intend to bid on is VAT registered.

While the pension scheme will be able to reclaim the VAT provided they are registered for VAT, the scheme will need to ensure that it has sufficient funds to pay the VAT prior to purchase, as a reclaim from HM Revenue & Customs can take a considerable amount of time. If the property is subject to VAT, then VAT will be due on the deposit paid. However, VAT is also payable on the buyer's premium, which is paid to the auctioneer whether or not the property is elected for VAT. All borrowing, even short term for VAT, is still subject to the 50% borrowing limit for a registered pension scheme.

Finally, it is your responsibility from the fall of the hammer to ensure that the property is insured. The legal pack will provide the property broker with the appropriate details, prior to auction, thus ensuring that you are ready to go on risk if the bid is successful.


Pension Perspective is a weekly feature from City Trustees, covering questions that our experienced sales and technical teams have received from advisers. The Q&A covers a range of subjects including property, pension contributions, protection, auto-enrolment and more.

City Trustees operates a free technical helpline for advisers for support with pension challenges. Tel: 0116 240 8731 or email:


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