Funding a commercial property purchase
There are several methods of funding available. Which is right for you will depend on your situation.
Transfers
Cash or in-specie transfers can be brought into your SIPP from other pension plans. In specie transfers are where the investments are transferred without selling them. You do not have to pay stamp duty on in-specie transfer. Please see your SIPP’s Key Features for further information about transfers and discuss them with your adviser.
Contributions
You, a third party or your employer can pay regular or single contributions. Please see your SIPP’s Key Features for more information about contributions.
Borrowing
A SIPP can borrow up to 50% of its net fund value less any existing liabilities. The ability to borrow does not cease when benefits are being paid from a SIPP; it can be put in place at any time for the purpose of purchasing or developing property.
The terms of the loan vary from case to case as they are often dependent on a variety offactors (for example, degree of risk to the lender) and any special mortgage conditions will need to be assessed on a case by case basis for acceptability. We will always require that the charge over the property be fixed to the value of the client’s SIPP. We are quite happy to deal with any regulated lender that meets our requirements. The loan must be in our name as the legal owner of the property and not the client personally.
We are able to facilitate personal lending to the SIPP for property purchases or redevelopment. There are additional requirements in respect of personal borrowing, put in place to ensure compliance with HMRC regulations. These requirements are outlined below:
- The lender must be the client personally or a buisness that they are connected to (director/shareholder)
- Our pro-forma loan agreement must be utilised
- The client must provide a market comparison of the proposed rates for the loan (to evidence that the loan is representative of an open market agreement)
The income generated from the property must be sufficient to fund all the liabilities associated with the property. Sufficient funding for the property, any required cash float and all associated purchase costs must be in place within the investing SIPP(s) before contracts can be exchanged on a property purchase.
We are also able to facilitate personal borrowing for the purposes of paying VAT due on a property purchase. The above criteria will apply for VAT loans also.
For partial ownership purchases the SIPPs can still acquire borrowing of up to 50% of their net fund values. Each title holder may, at our discretion, require their own separate loan. The debt is detailed under the trust deed. Where borrowing is to be allocated to the non-Curtis Banks clients, we insist that borrowing does not exceed 100% of the market value of their property ownership share, with such liability being documented in a specific loan agreement between lender and non-Curtis Banks borrower. Borrowing should also be secured under a fixed charge.
You can find more information on funding a property transaction or development works in our Property Guide.