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Pension Schemes

Question: Does ownership of a property in a self-invested personal pension create difficulties in the event that I wish to retire or if I die before retirement?

Careful planning should ensure that purchase of a commercial property within a pension arrangement causes no problems. However, it is essential that guidance is taken from a suitably qualified adviser first, to ensure that all the issues are properly addressed.

Historically, any pension arrangement with most of it’s assets in property had a potential liquidity problem when seeking to access pension benefits, particularly the pension commencement lump sum (PCLS) - previously tax free cash - or upon death.

When property purchase is being considered, it is likely an unsecured pension structure (USP), previously known as pension income drawdown, will be used and it is recommended that any contract allows for switching into a USP. Ensure sufficient cash is accrued to meet the PCLS and that rent payable into the pension scheme is able to cover the future pension income requirements.

Care should be taken to ensure the option of selling the property is considered in time to provide the flexibility to purchase an annuity before age 75. This allows avoidance of the penal tax provisions applying to lump sum payments under alternatively secured pensions - the post-75 income drawdown regime.

The Pension Act 2006 changed the situation on death. Previously the property would have to be sold and the proceeds distributed to the beneficiaries of discretionary trust provisions that apply to most pension arrangements. The new legislation allows the property to be transferred directly to the beneficiaries ‘in specie’, although providers would only be likely to agree to such a course of action if their costs could be recovered.

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