SIPP Property and Divorce

There has been an excellent arrangement for business owners to buy their commercial property through their pension scheme- but there are dangers too.

The advantages have been well rehearsed before:

1. Tax relief on your pension payments which can then be used to fund the purchase
2. You get tax relief on the rent payments but the pension scheme doesn't pay tax on the rental received
3. You can borrow inside the pension (albeit not as much as you used to- only 50% of the fund now, but nothing stops you borrowing and putting the contribution in)

Some new advantages since last April

1. So called "connected persons" rules disappeared, this stopped you buying from your own partnership or from yourself or family members. This rule stopped many professional firms which owned their practices buying them back
2. New rules allow much bigger contributions, so even though the funding with borrowing rules are cut, you can make bigger pension payments in

But I want to focus on some problems today

1. Imaging buying your firms property, and then a partner divorces. The ex-wife will either have a say in the arrangement or have to be funded out by debt if possible or more contribution s. You need to have an honest conversation with the parties prior to entering into this arrangement if there is a possibility of this.

2. Syndicate arrangements. Often business people fall out and no surprise, they get entered into a heated debate about business assets. Unless you have a syndicate agreement (a kind of pre-nup for SIPPs) then you could get into real trouble. A syndicate agreement sets out what happens in lots of circumstances and how it will be arbitrated.

4. Remember that you can insure things too, both the buildings and the members. Maybe even the key people in the business if it will have a direct impact on the covenant of the pension scheme.

As all financial products SIPPs are great in their place, but consider all the aspects round about them