Our client owned a successful recruitment business and was looking for their own offices to move their growing team into. They found a freehold property with vacant possession in the locality that consisted of a retail shopfront with offices behind and a residential flat above. Our client had a pension from their previous employment but hadn’t been contributing in recent years. They had been discussing the prospect of setting-up a SSAS for the business for some time with the intention to purchase the property this way but had been advised of the complexities of residential property in a pension and wasn’t sure of its viability in this instance.
The property value was £325,000 and the surveyors report split the value at £200,000 for the commercial element and £125,00 for the residential.
As things stood there would be prohibitive tax charges if they set up a SSAS and purchased the property due to the residential element. The value of the investment in the residential part would have been classed as an unauthorised payment and taxed at up to 55%.
The challenge in this case was that freehold titles can only be split with properties adjacent to the subject property in England and Wales. Flats (or indeed anything above or below) are caught by this.
In this case Indigo was able to come up with a practical solution to a complex situation which entailed creating a leasehold interest within the existing freehold title. The steps that were followed are:
- Offer made to vendor to purchase the property for £325,000
- Valuation carried out by surveyor confirming the value of the intended leasehold and commercial element
- A SSAS was set-up and existing pension transferred into it
- The SSAS trustees formally appointed a solicitor to act for them in the purchase:
- Legal work commenced to transfer freehold title
- Solicitor simultaneously created a new leasehold title on the commercial part of the property.
- The freehold transferred to the client and the leasehold for the commercial to their SSAS
- The SSAS released £200,000 and the client personally paid £125,000 to the solicitor as consideration
- The vendor received £325,000 to complete the purchase of freehold title
This neatly dealt with all of the challenges presented by the scenario leaving the SSAS with no interest in the residential element and therefore no nasty tax charges and the client in control with options over what can be done in the future i.e. convert the residential element into commercial as their team continued to grow.