Stephen McPhillips: Mixed-use properties in SIPP or SSAS

Stephen McPhillips assesses if mixed-use property can be bought through self-invested pension schemes

A number of properties in the UK have the distinction of being of a mixed-use nature.

By this, I mean that there are both commercial and residential elements to them. A short walk along many town centre shopping streets will confirm this.

With a plethora of these types of properties in existence, it’s not surprising that clients sometimes enquire about acquisition of one through a self-invested pension scheme – be that a self-invested personal pension (SIPP) or a small self-administered scheme (SSAS).

Fortunately, the rules around property ownership in either vehicle are the same, so other considerations might come into play for advisers regarding which vehicle might be most suitable for the client’s needs.

Can mixed-use properties be acquired by SIPP / SSAS?

The short answer to this question is “possibly.” This is because much depends on the exact nature of the property, its use(s) and the parties occupying its constituent parts.

Let’s initially work on the basis that the client wishes to acquire both the commercial and residential elements of the property through a self-invested pension scheme.

For this to occur without “taxable property” charges arising on the value of the residential element, great care needs to be taken regarding the person(s) occupying that residential part of the property.

In broad terms, the residential element needs to be occupied by a person or persons who are not connected with the scheme member and the person or persons occupying it should only be doing so by virtue of their use of the commercial element of the property as a workplace or business premises. Whilst the two elements of the property are very often immediately adjacent or attached to each other, this might not, and need not, be the case.

It follows, therefore, that the residential part of a mixed-use property cannot be occupied by someone not involved in the use of the commercial part as business premises, without taxable property issues arising in the SIPP / SSAS.

What if the client’s circumstances don’t fit in with this?

It is quite common for the above requirements to be unachievable or unworkable for the client – either at outset and/or later on, and it is an ongoing requirement, not just one that applies upon purchase by a SIPP / SSAS.

Consider, for example, a flat above a shop; in many cases the flat will be occupied by tenants who do not work in, or operate a business from the shop downstairs. Often, clients will want the freedom and flexibility to lease the residential element of mixed-use properties to as wide a range of potential tenants as possible. If that’s the case, a solution needs to be found if the property is to be acquired through SIPP / SSAS.

What can be done to meet the client’s needs?

There can be solutions available to clients, but this again is very much dependent upon the exact nature of the property. One option might be to split the title of the land on which the property sits so that the pension scheme only acquires the legal title to the commercial element.

Consider, for example, a parcel of land under one legal title and on which sits an office and, close-by, a house. It might be possible to split the legal title into two separate titles and for the pension scheme only to acquire the office and land upon which it sits. It would, therefore, have no legal interest in the residential property.

Things get more complex, however, where it’s not possible to carry out that type of split of title.

Let’s think back to our “flat above a shop” scenario for a moment; dividing the legal title in the same way as we’ve just described would not be possible because the flat is likely to sit above the ground footprint occupied by the shop.

However, provided that the flat has its own separate access and services (e.g. electricity, water and so on), it can be possible to legally separate one from the other and clients should seek legal advice on how this could be achieved in their specific circumstances.

Stephen McPhillips is technical sales director at Dentons Pension Management