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The Professional Practices SIPP offers the opportunity to increase your buying power.
Self-invested pension plans (SIPPs) have been a feature of progressive pension planning over the last decade or more, and rightly so. A SIPP offers individuals flexibility, control over investments, and the ability to hire and fire advisers without penalty. But, unlike private company directors, the self-employed have been denied the ability to use pension savings to assist in their businesses – until now.
The sweeping reforms to pension regulation enable a barrister to use pension funds to purchase commercial property, including the chambers' own offices. Three important advantages flow from this route – tax relief on contributions going in, arms' length rent payable to the pension fund (deductible as an expense to the business, effectively another contribution), and tax free capital growth on the building and the income it generates.
An individual SIPP may offer this facility, but the capacity to purchase commercial property will be restricted by the size of the fund and the annual lifetime allowance of the individual concerned. However, a recent development from the new legislation, the Professional Practices SIPP, will overcome this obstacle.
Barristers (and groups of like-minded individuals generally), can join together in a Professional Practices SIPP. They make their pension contributions into a pooled fund and combine their annual allowances, so they potentially have far greater buying power than an individual SIPP investor. If, say, ten barristers in chambers joined together in a Professional Practices SIPP, they have the collective potential to buy and retain a building in the SIPP worth up to £15m. Existing pension arrangements can be transferred into the pooled scheme if required, and the fund can gear up by borrowing up to 50% of the net asset value of the pooled fund. Thus, if the ten barristers transfer existing pension funds of £2m into their Professional Practices SIPP when they set it up, they can, with gearing, potentially buy commercial property of up to £3m straight away.
Barristers joining the chambers can be eligible to join the Professional Practices SIPP, and those who move away can leave the SIPP. However, all decisions need to be unanimous. With careful management between the members, including policies about joining and leaving, the Professional Practices SIPP can be tailored to suit the chambers.
The Professional Practices SIPP is a relatively new concept and available from only a small number of financial players at the present time, but in my view, its popularity is likely to grow rapidly. A Professional Practices SIPP offers sensible use of the pension planning rules currently available, and maximises all possible options on retirement. As well as the above, the extensive range of investment options which are open to individual SIPPs are available to the Professional Practices 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.