Property for Pensions - Likely Returns & Associated Costs
Here is a typical example of a Property for Pensions acquisition…
being a freehold office for £245,000
- Property for Pensions search fee £1250
- Acquisition of property at £245000
- Property for Pensions Acquisition fee 2% (less £1250 search fee) £4750
- Government Stamp duty 1% £2450
- Surveyors structural fee £800
- Conveyance lawyers fee £1250
If the property was vacant & immediately able to be let the agency costs will be 12.5% of the first years rent to secure a tenant. There may be marketing & associated board costs 
If the property is fully managed by Property for Pensions there will be a fee of 10% of the rent as an ongoing cost.
Whilst the one off costs of £11750 plus the agency fee for securing the tenant, if needed, drive the first years net income to 3.2%, if let initially at 8% the property from year two onwards shows a regular income of 7.2 %
(if managed) or 8% gross.
We have not discussed the financial structure of this acquisition as this will change on a case by case basis depending upon what has been recommended & advised by Allsopp Financial Management Ltd
All fees are liable for VAT.
SIPPs
One option to safeguard investments is to put property already owned, or property being acquired, into a tax-efficient pension fund.
What are the benefits?
- There is no capital gains tax payable on the sale proceeds of property held in a pension fund.
- Rent received by the fund is free from income tax.
- Premises you want to acquire for your business can go into the fund and be leased back to the business, helping safeguard the property against potential insolvency.
- A loan can be taken out from the pension fund of up to 50 per cent of the value of the pension pot to acquire property.
Are there disadvantages?
- Stamp Duty is likely to be payable on transfer of property into the fund.
- Because the property is owned by the pension fund it cannot be used as security for the liabilities of a business.
- The property will need to be acquired at market value, with an appropriate valuation made.
- There may be ongoing costs payable to the fund trustee for management of the property.
Risks
The risks associated with investment properties are those associated with the property being invariably empty, whilst one awaits a tenancy or between tenancies. These include the obvious on going finance & rate costs (if applicable) but also the on going maintenance costs.
Whilst the liability for repairs during the tenancies invariably sits with the tenant, taking a fully insuring & repairing lease there is often the position during shorter leases that the tenant will only commit to internal repairs & insurance such that the landlord is responsible for the overall structural repair & maintenance during the tenancy.
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