It was another quiet Budget for pensions: the only tax related change was confirmation of the new lifetime allowance for the 2019/20 tax year. The increase in line with the Consumer Price Index has been rounded up to the nearest £1,000 rather than the nearest £100 as allowed for in the legislation, resulting in the slightly easier-to-remember new figure of £1.055m.
However, there were a couple of announcements relating to commercial property which may be beneficial to SIPP investors holding property investments, as well as their tenants (which may be one and the same).
Firstly, the change of most interest to tenants is likely to be the business rates discount for small retailers, which will apply from April 2019 and run for two years. The paper released following the Budget, ‘Our Plan for the High Street’, confirms that the discount will apply to certain occupied retail properties with a rateable value below £51,000. It also states that up to 90% of retail properties may be able to benefit. Guidance will be published by the end of the year to confirm which businesses will be able to benefit.
More significant for SIPP investors was the announcement that the Government will consult on ways to simplify the processes for converting commercial property into residential homes. It may seem counter-intuitive to hail this as a positive change when SIPPs cannot normally invest in residential property without incurring heavy penalties, but it does open up possibilities for SIPP investors.
For example, it may open up new options for investors when the time comes to sell their commercial property. If conversion for residential use is a new (or more easily accessible) option for the property, it may be attractive to a greater pool of buyers and could therefore be easier for the investor to sell. If the investor wants to sell the property at relatively short notice, perhaps to access pension benefits if there is insufficient liquidity within the plan before the sale, then this could be very beneficial.
Some commercial properties with the potential to be converted for residential use may attract higher sale prices. This is already a consideration for some SIPP investors, who may choose to apply for planning permission before the sale so that it’s already in place for prospective buyers. This may become more prevalent if it becomes easier to develop commercial property for residential use. However, it’s always worth discussing this process with the SIPP provider before making any changes. As residential property cannot be held within SIPPs without incurring heavy tax penalties (unless a taxable property concession has been implemented), providers will have different processes in relation to development works. For example, we will allow commercial property to obtain residential planning permission, but we require the property to be sold from the SIPP before development work actually begins.
Another thing to note is that SIPPs aren’t able to permit property ‘trading’. This is the practice of repeatedly buying properties, making improvements which increase the value (which may include obtaining planning permission) and quickly selling them on. As pensions are a long-term savings vehicle, HMRC does not deem property trading a suitable activity within a SIPP.