Moorings
We have had a surprising number of enquiries about these recently. Purchase of moorings is allowable and constitutes commercial property. Another unusual option is golf courses, which are also allowable.
Overseas Property
In theory, commercial property anywhere in the world can be purchased by a UK registered pension scheme.
In practice there are many hurdles to overcome, not least that the country of purchase may not recognise the property as being held by a tax-exempt pension scheme and local property taxes might apply making the investment unviable.
Solar Panels and Wind Turbines
This is often debated, so it is probably best to use HMRC’s words. Their Pensions Tax Manual says:
"If an asset has not become part of the land or any building to which it is attached, then it retains its separate identity. If, however, it is permanently or semi-permanently attached to the land or any building to fulfil a function as part of the building, it is regarded as part of that land or building."
HMRC regards the question of mobility as one of fact. Can the asset be moved easily and without damaging its surroundings? Small items of plant or other easily moved items will satisfy the test.
Connected Party Transactions
A UK pension scheme can purchase commercial property from, sell to or let to connected parties. In all cases a valuation from a Rics-qualified valuer is required to demonstrate that the price paid is an open-market arms-length one and no manipulation of prices to benefit one party or the other is taking place.
Borrowing
UK pension schemes can borrow up to 50 per cent of their net fund value to purchase commercial property. Lending can be sourced from commercial lenders or can be from connected parties such as the client’s company.
This can be extremely useful where there are insufficient funds in the pension scheme and the members are constrained by annual allowance contribution limits but the company has the resources available.
Management Fees
The Trustees of a UK registered pension scheme can receive remuneration for managing the fund. This means where the clients manage the property, they can receive a management fee from the rental income in the same way as a letting agent. Any fee must be on commercial terms and at commercial rates and the client will of course be liable to income tax on the fees received.
Joint Purchases
Pension schemes can also make joint purchases of property with other parties such as the client’s business or themselves personally. There are a number of challenges involved such as the conveyancing, rental and VAT but these can be overcome.
As with most asset classes, the fortunes and trends of commercial property ebb and flow with market and economic conditions. It is therefore useful to take a quick look at what is hot now and what is forthcoming.
