The Pension Solutions Group

Creative thinking and a bit of flexibility

Client background

• about 6-7 years ago two particular clients used SIPPs they’d established through a large Life Office, to buy a commercial property for £600,000.  The ownership on completion was 50/50;
• their SIPPs borrowed £450,000 to help fund the purchase (borrowing of more than 50% of the net fund value was possible before April 2006, not to mention a tad easier to get the banks to cough up);
• over the last 6-7 years, the value of the property has gone up and at its peak was worth nearly £900,000;
• due to the universal down turn in the property markets, the property is now worth about £700,000;
• the SIPPs are still servicing the debt and through rental income and contributions, have reduced this to £300,000;
• the SIPPs also have other investments in the form of cash and shares, worth about £200,000;
• this gives the SIPPs a current net value of £600,000 (£700,000 - £300,000 + £200,000), which isn’t bad considering they started with less than £180,000 and have only invested an additional £130,000.

Pension Schemes can be a real lifeline for you, whether you are an incorporated business, Sole Trader or a Partnership trying to grow or stabilise your business.  All you need (apart from love of course) is a client focused approached, a creative thought and a bit of flexibility from your pension scheme provider.

The challenge

Fast forward to late 2010 and one of them, whilst ice bound in Terminal 5 of Heathrow during its brief incarnation as a cross between a shopping arcade and a soup kitchen, decides that now is a good time to buy another commercial property using his SIPP.

This client and two individuals new to the picture, find a suitable property which is on the market for £500,000 which they agree to buy with a split of ownership of 40/40/20.  The original client being one of the 40% owners.

• They arrange funding for the purchase of £300,000 (60% of the property value) and therefore need to get their hands on a further £200,000 and then a bit more to cover the various legal and survey costs etc;
• the client opts to use his Life Office SIPP again as it seemed to work well on the original purchase and he can utilise his cash and shares (worth about £100,000) for the funding and take out some additional borrowing;
• on contacting the Life Office the client was told that he could not do this because the other two people involved with the purchase don’t have SIPPs with this same Life Office;
• to make matters worse, even if the client got around this initial problem, the purchase still can’t go ahead because thanks to that rule change in April 2006, the client doesn’t have the capacity to borrow the necessary amount because of their existing outstanding borrowing;
• to get around this and be able to borrow enough, the client would need to pay a contribution of at least £70,000;
• they had already exchanged contracts and were due to complete in early January;

Our input

Through the combination of the Independent Financial Adviser’s specialist and considered advice and our innovative and unique processes, we put the client in a position where they retained full control of their property, whilst becoming debt free and having mitigated some of their tax liabilities at the same time.

The outcome

• we arranged the purchase of the property through a pension scheme;
• we eliminated the client’s debt;
• we also eliminated their current tax bill;
• we widened the transaction to include other parties that then also benefitted from the purchase;

The magic bit

There’s loads more we could tell you about what happened, about how we did it and about how it could be used to help you and your clients.  In fact, there are lots of added benefits that come with this process, but we’d rather not go revealing any more just now.  Instead, if these problems sound at all familiar and you’d like to talk to us to see what we did for this client, how it actually led to us and the adviser picking up 5 new ones and if we can help you and your clients in any way, we’ll happily fill in the blanks at a meeting with you.