UK: Looking For Liquidity When Cash Is King - The Smith & Williamson Family SIPP

Last Updated: 28 January 2009
Article by Mike Fosberry

Mike Fosberry explains how professionals can invest together for a mutually beneficial pension outcome.

The pension simplification reforms, which came into force in 2006, allow for greater flexibility and innovative solutions. Importantly, the new rules don't distinguish between companies and private individuals – allowing for the advent of the Family Self-Invested Personal Pension (SIPP). The Family SIPP is made possible through a little-known but highly desirable feature of the regulations that can have far-reaching consequences for those involved in business together.

The Smith & Williamson Family SIPP enables professionals (solicitors, barristers, accountants, chartered surveyors, dentists and business partners) to consolidate their existing pension pots into one fund that can be used to purchase commercial property. Pension funds can buy freehold or leasehold, whether offices, surgeries, retail units, leisure facilities – even land – and includes their existing trading premises. However, great care must be exercised if there is any residential element.

Such an approach creates liquidity from existing capital, without the need for any new monies to be invested, and is therefore likely to be of great interest in the current economic climate which is hindered by credit constraints. Wellinformed investors will be looking for opportunities to exploit unfavourable conditions; by using this approach they have the chance to harness capital that may have been invested into pensions some time ago, when times were far less challenging than now.

As well as all the normal features and benefits of a SIPP wrapper, the Family SIPP offers a number of other benefits and tax advantages.

Gearing and tax efficiency

Tax-efficient gearing of up to 50% of the net asset value of the pension fund is allowable. Preferential fast-track borrowing terms have already been secured for Smith & Williamson clients.

There are four major tax advantages to this approach.

  1. Substantial tax relief on the initial pension contributions.
  2. Rental income generated from the leasing back of the property is free of tax.
  3. No capital gains tax is payable on the future disposal of the property.
  4. Pension funds are inheritance tax efficient up to age 75.

Special features

The scheme allows for the potential to reallocate between scheme members any investment growth on assets held within the pooled fund. Under certain circumstances, this point alone opens up a number of important wealth-management and succession-planning opportunities. Furthermore, a full range of retirement options are available, including a lifetime annuity, unsecured pension (pre-75 drawdown), alternatively secured pension (post-75 drawdown) and even a scheme pension.

Due to the structure, the scheme becomes central to the business, so it can help to engender a more partnership-centric mindset. It allows for an unusually nimble and flexible structure that can efficiently accommodate partners retiring, dying and leaving, and new partners joining the business. This facilitates tax-efficient succession planning.

With more and more people wanting to take control of their pension funds, with liquidity being such an issue in the market right now and with the commercial property bargains that are out there, this is a timely solution that could tick all the boxes. If you feel it may be of benefit to you, please call us to discuss the Smith & Williamson Family SIPP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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