Can a SSAS Pension buy residential property?

Perhaps one of the most common questions we receive at TLPI is “Can a SSAS buy residential property?” There are two ways of answering this question the first in the strictest sense is yes a pension can purchase a residential property however HMRC class residential property as “taxable property” within a pension scheme and therefore impose a tax of 55% of the amount invested. So in reality no you cannot purchase residential property directly or indirectly within a pension scheme when investing your SSAS pension without receiving heavy penalty. You can read HMRC rules around “taxable property” directly on their website by clicking here

For those not interested in investing in commercial property, which is allowed within HMRC rules, the alternative is to develop innovative strategies to invest their SSAS funds in other ways, permitted by HMRC. For example, you could use the SSAS loanback facility to loan to your company, for the purpose of purchasing property of any type. You could also loan to a 3rd party residential property developer; you could invest in hands-off property investments; or many other strategies for investing our SSAS in property. You can read HMRC rules around “taxable property” directly on their website by clicking here.

For those not interested in investing in commercial property, which is permitted within HMRC rules, the alternative is to use HMRC-compliant strategies that do not involve the SSAS owning residential property. For example, the SSAS loanback facility can be used to lend to your trading company for legitimate business purposes. You could also lend to a third-party property development business, invest in hands-off, permitted property-related structures, or deploy SSAS funds in other compliant ways. In all cases, the SSAS itself does not own residential property, avoiding HMRC taxable property charges. 

A good way to understand how this works would be to look at a case study as an example of how this can be used in practice. This case study is a real case study from one of TLPI clients called Andy. He had existing pensions from old employers with a total value of £600,000 with our help he established a Small Self-Administered Scheme pension which opened the door for a loan of up to 50% of the value of his fund (£300,000). Andy Identified a run down property in Cornwall that he wanted to purchase within his trading property business with the intention of redeveloping the property and selling.

The property was for sale for £200,000 but due to the speed at which Andy was able to complete on the purchase he was able to negotiate the price down to £150,000. Using the SSAS loanback he drew down a loan of approximately £190,000 and simultaneously gave the pension scheme a first legal charge over the property he was purchasing. This loan covered the purchase price and the majority of the costs involved in purchasing, developing and selling the property.

Once the work had been completed the property was sold and proceeds used to repay the SSAS loanback along with a healthy interest payment back into the pension. The profits from the development were then retained within the limited company.

The above is a straightforward example of how, when structured correctly, a SSAS pension can be used to provide loan funding to a property development company, enabling the company to acquire and develop residential property without the pension itself owning taxable property. 

You can read more about SSAS loanbacks and the rules that must be adhered to by clicking here.

Structuring loans and investments within a SSAS pension is a specialist area, and one in which TLPI has extensive experience. If you are considering using a Small Self-Administered Scheme pension to support your business and would like to understand how this could work in practice, you can book a FREE initial consultation with one of our SSAS advisers by clicking here, or call us on 01235 426666.