The fine print
There are situations where the rules are not definitive. A pension investing in residential property will incur substantial tax penalties, so this needs to be avoided, but what does ‘residential’ mean? Phrases such as ‘when it is suitable for use as a dwelling’ are used, but they still require interpretation of the facts and circumstances of an individual case.
It does mean, though, that a Sipp can invest in the development of residential property provided it disinvests prior to the property becoming suitable for use as a dwelling. The key is knowing where the boundaries lie.
Experience and expertise is also required to avoid falling foul of tangible, moveable property rules, which, if invested in again, incur significant tax penalties. For example, this could involve knowing when machinery is deemed to be part of the fabric of a property or land, as opposed to being moveable property.
For the Great British Bake Off aficionados, facilitating property purchases via Sipps, Family Sipps or small self-administered schemes is a bit like the technical bake; you are given the ingredients and a basic recipe but it takes experience and expertise to deliver the right result. Getting it right means you can have your cake and eat it.
Robert Graves is head of pensions technical services at Rowanmoor Group
