Club Together to Buy Commercial Property with Your Pensions

George Ttouli is the Principal at Burlington Wealth Management Ltd. In this article, he talks about combining pension funds with others’ to invest in commercial property.

Most people know you can use your pension fund to invest in commercial property. Of course, you need a self-invested pension: either a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS). The problem is you might not have enough pension fund to afford the commercial property.

A pension fund can be borrowed to raise money towards the purchase of a commercial property but the maximum loan is limited to 50% of the pension fund value. If this is still not enough, what do you do next? 

Why not have a chat with friends, family, business associates who have a similar interest in property investment? Likeminded people may also have pension funds which they would like to invest in commercial property. So, in essence, you can form a syndicate of individual pension funds that can each purchase a share of a commercial property.

This works perfectly for personal pensions set up as SIPPs. This is different from a SSAS which is a single pension scheme with more than one member. In a syndicated arrangement such as this, each SIPP will have its own separate share in the property. So different individuals can bring different amounts to the syndicate. Each individual’s SIPP is a separate legal entity.

Financial advice is essential. An experienced financial adviser will manage the transaction across all the parties and help take out the complexity involved. There are excellent pension trustees who understand this arrangement whom your advisor will select and will deal with transactions on your behalf. 

I presented a really good example of a syndicated property purchase in the recent webinar “Pensions Fit for Property”. This was a super webinar hosted by Mike Bristow (you cand find a recording on Qandor.org/webinars if you’d like to listen to the presentation again).

This was a straightforward example, in fact, as the purchasers were legal spouses clubbing together to buy a commercial property. They were able to secure a mortgage against the property from within their pension schemes but still found themselves a little short on the purchase price. The final share was purchased through a special purpose vehicle where they were able to use some of their non-pension funds.

Mr and Mrs D purchased the freehold of a commercial property using their pension funds as follows: 

Purchase price £1,800,000

Mr D SIPP value £600,000

Mrs D SIPP value £300,000

Mortgage arranged for total of £450,000. Please note this is the maximum permitted under the pension rules (£300,000 through Mr D’s pension and £150,000 through Mrs D’s pension).

Total funds accumulated were therefore £1,350,000 with a shortfall of £450,000.

Special purpose vehicle was formed to buy the remaining share. 

The result is Mr D’s SIPP owns a 50% share in the property, Mrs D’s SIPP owns a 25% share and the SPV owns a 25% share. 

This is a simple example where I have rounded off the figures to illustrate how a syndicate can purchase a property. In reality, however, there are the usual legal fees, disbursements and advice fees that need to be considered. 

So there you have it. If you have pension funds and you feel they are not performing, then why not use your property knowledge to invest in commercial property? If you don’t have enough money in the pot, why not have a chat with some friends who may club together with you for the right opportunity? Think of this as some kind of “pension joint-venture”.