RP Case Study: Using SIPP and SSAS to buy land

Within the SIPP and SSAS world, there is an ever increasing interest in the purchase of land, writes Stephen McPhillips, so it is important the proper due diligence is carried out, including asking questions on the commercial viability of such an investment

Within the self-invested personal pension (SIPP) and small self-administered scheme (SSAS) world, there seems to be an ever increasing interest in the purchase of land.

There could be a number of reasons for this. For example, it is fairly common for agricultural land to be bought through SIPP and SSAS and then leased to a farming business – not necessarily a farming business connected with the pension scheme member. It is also becoming increasingly common for land to be acquired for other uses such as pony paddocks, equestrian centres, commercial forestry, camping and glamping sites, and so on.

Another possible reason for acquiring land might be the strong expectation that planning permission for construction of commercial or residential property can be obtained quite quickly after purchase.

In any case, Brexit does not appear to be dampening the appetite.

Assuming that there are sound commercial reasons for a SIPP or SSAS to acquire an interest in the land, this, at least, is a strong starting point for a discussion. That might sound obvious, but unfortunately, some proposals are driven by other factors.

It would not be unheard of for an individual to request that their SIPP or SSAS buys a piece of land which is effectively at the bottom of their garden – or very close to their house. It might be an attempt to raise some much needed cash from selling a personal asset to a known and willing buyer, or it might be to acquire the piece of land so that no-one else can acquire it. Often, there is little or no investment return to the SIPP or SSAS, but given that returns were not the main driver for the purchase, clients can appear happy at the time to overlook this aspect of the investment.

Some clients will want to buy land in the hope that it simply grows in value over the years. It would be reasonable to class this as “land-banking” which carries some well-earned disdain among responsible SIPP and SSAS providers.

Given the multitude of possible motives for acquiring land through SIPP and SSAS, it is vital that proper due diligence is carried out on the transaction in advance of establishing a SIPP or SSAS for the intended purchase and before instructing solicitors, registered valuers, etc.

So, what due diligence considerations are there for land in particular?

The aim of any sound due diligence work should be to minimise the possible risk of tax charges applying to the SIPP or SSAS. That goes for any proposed investment of course – be it land, buildings, unquoted shares, and so on.

For land purchases, various questions should be asked. These include:

  • Does the land have clearly defined borders or boundaries? If these aren’t clearly defined and of a physical nature (e.g. hedgerows, fencing, brooks) then it may be impossible to determine where the piece of land ends and adjacent land begins. Hence, security, health and safety, and ownership issues could arise. The latter is particularly important if the land is adjacent to a connected person’s dwelling.
  • Is there good access to the land from a public road? If a piece of land is effectively ‘land-locked’ and can only be accessed through another piece of land owned by another party, not only does this make access to the land potentially problematic, but it can also present difficulties further down the line when trying to dispose of it to create cash within the SIPP or SSAS. Such land will be much more difficult to market and sell and it could greatly slow down, for example, the process of settling death benefits to beneficiaries of a deceased member.
  • Is the land immediately adjacent to a connected person’s dwelling? In the absence of a sound business plan for the land, HMRC could deem the purchase as a means of simply extending the connected person’s own property and look to tax it accordingly.
  • Is there good and clear legal title to the land?
  • Is there any tangible moveable property included in the purchase? This could include things such as glamping pods, tents, caravans, poly-tunnels, and so on.
  • Is there a sound commercial reason for the acquisition of the land, which is supported by a well thought-out and viable business plan? Often there isn’t and it becomes clear that the motive for the purchase is something other than a sound pension scheme investment.

Land purchase through a SIPP and SSAS can work well for clients in the right circumstances, but beware of proposals which simply don’t appear to stack-up commercially.

Stephen McPhillips is technical sales director at Dentons Pension Management