Property

Registered Pension Schemes are able to directly invest in Commercial Property such as industrial units, offices and land. Land can be held with residential planning permission but should be sold before any building commences.

Schemes are able to borrow to purchase property subject to the borrowing limits set by HMRC (currently 50% of the net fund minus any existing borrowing).

Tax Advantages

Pension arrangements are particularly tax advantaged:

Tax relief at your highest rates on contributions: this can help subsidise a purchase by the fund;
Full relief from UK taxes on rent and capital gains within the fund;
Generous tax-free lump sums on retirement or death before pension options are exercised.

A condition of the tax relief is that most of the fund must provide an income that will be subject to tax, so whilst there may be tax relief on contributions and tax-free disposals within the fund, much of the tax charge is being deferred rather than being removed altogether.

Property income and expenses

Pension funds are generally exempt from UK tax on rent. This means that expenses cannot be offset against income that would otherwise have been taxed.

If overseas property purchase is contemplated, it is crucial to be well informed on the local consequences of purchase by a UK Trust, on financing, inheritance and other disposals and on fulfilling other obligations such as tax paying.

Property disposal

There is no liability to UK capital taxes on disposal of a property by a pension fund.

General

All properties accepted into Hornbuckle Mitchell Trustees Limited schemes have to have a satisfactory environmental report.

A property can be part owned by a scheme with any of the following:

another scheme
an individual outside of the scheme
a company

A property is like any other form of investment on which a return is required to provide growth within the scheme’s fund. This is primarily in the form of income generated from rental payments paid into the scheme and potential capital growth.

Stamp duty and VAT

Both these taxes are payable if applicable on a property acquisition by the pension fund.

In the event of the property being subject to VAT, the scheme must register for VAT and choose the option to tax land and property in order for the scheme to reclaim the VAT on purchase. Consequently rental demands will be subject to VAT. However there are problems if the tenant is not registered or has a VAT level below the standard ie Health care operatives and financial services – in this case as long as the property is below £250K ex VAT we can reclaim back via Capital Goods Scheme. Please note the VAT position before opting to tax land and property.

Case studies