Case study: SIPP property transfer
16 January 2017
Nigel Bennett, sales and marketing director, InvestAcc Pension Administration presents a case study on the issues that can be faced when a client requires a property to be transferred between SIPPs
Alison set up a SIPP four years ago, and whilst she was initially happy with the choice of provider, she has experienced repeated poor service and she has heard that the fees being charged are no longer competitive. The provider has been purchasing some other SIPP businesses and Alison feels that existing customers are not valued as much as they once were.
The SIPP owns a commercial property, which is an office building rented to Alison’s business under a five-year lease, on commercial terms. The property was purchased almost four years ago, at a cost of £220,000 and the original loan that was used to finance the purchase has now been fully repaid. The property is VAT-elected (also referred to as ‘‘Opted to Tax’’). Alison speaks to her financial adviser and asks him to look at alternative SIPP providers, with an emphasis on finding a new provider that offers a much better service with value for money fees.
The adviser finds a suitable alternative SIPP provider and points out to Alison that there would be some one-off costs incurred by transferring the property, and whilst in this case there is a lower on-going fee with the new SIPP, the benefits of this may take a period of time to outweigh the one-off costs of transfer.
Alison is comfortable with this, bearing in mind the poor service from the current provider, and the fact that she intends to hold this property for many years to come.
The process to transfer the assets between the old and new SIPP schemes is similar to that required for a brand new sale and purchase, although there may be the opportunity to streamline certain aspects which will help control costs.
The new SIPP will require solicitors to be appointed to make some basic enquiries, to prepare a report on title, and to prepare the legal transfer documents. The total legal costs are likely to be higher than for a standard property purchase, because the existing SIPP provider will also require solicitors to be appointed.
Alison enquires whether both SIPP providers will allow her to pick one firm to act for both sides (the existing SIPP and the new SIPP), happily in this case they agree provided the firm has processes in place to deal with any potential conflicts of interest. By using one firm of solicitors there may be some efficiencies that can reduce the overall cost burden, and also the time it takes to complete the whole transaction. Bear in mind that in Scotland, it is unlikely that one firm will be able to act for both sides.
In addition to appointing solicitors, the new SIPP is likely to require a RICS qualified surveyor to prepare a fresh valuation report. Sometimes they may take a previously prepared report, with a side letter that confirms the up to date position.
The tax situation
In this case, as there is no change in the beneficial ownership of the property, the solicitor confirms to Alison that no Stamp Duty Land Tax (SDLT) will apply, provided the property is in England or Wales.
For Scottish properties, SDLT was replaced by Land and Buildings Transaction Tax (LBTT) in April 2015; press reports in October 2016 have suggested LBTT may apply on in-specie property transfers, although many are of the view that in the absence of ‘debt as consideration’ there should be no LBTT on this particular transaction. Until the position is clarified, for Scottish properties it would be wise to speak to a Solicitor in advance to establish the LBTT position before any of the legal work commences.
Although the property is subject to VAT, the existing lease will remain in place and will simply be assigned from the old to new SIPP, the accountant confirms this can be treated as a Transfer Of Going Concern (TOGC) which means no VAT is payable on the value of the property being transferred.
If there was no previous lease, or a change of tenant, then the transaction would not be a TOGC; in the case of VAT-elected property the new SIPP would have to pay the VAT and then reclaim it from HMRC.
Note that VAT may be incurred on other expenses, if the SIPP is VAT-registered then it can recover VAT on fees relating to the transaction e.g. solicitor’s fees, but not the SIPP provider fees.
Is it worthwhile?
In-specie transfers of property can take an extended period of time to complete, this is often because the ceding scheme may be in no hurry to complete the transaction, or the service concerns that prompted the move may also be reflected in this transaction. It is also not uncommon to find issues with the original purchase transaction, which emerge when the new SIPP provider conducts its due diligence.
Lengthy processes can mean a duplication of fees whilst the customer has two SIPPs for a period of time, this should be factored in to normal advice considerations.
Fortunately for Alison, the effort and time to move from an underperforming provider can be very worthwhile, provided the costs of doing so are not excessive.