Stephen McPhillips looks at HMRC's treatment of tangible moveable property in relation to SIPP property purchases in his latest RP case study
Jake and Bill run a flourishing supply chain business dealing with all sorts of consumer goods.
In fact, things have gone so well for them over the past few years that their limited company business is rapidly outgrowing its rented trading premises – a small industrial unit on an industrial estate on the edge of town.
The style and layout of the unit is perfect for them; it’s simply the case that they need a larger version of what they already have. The unit includes a very useful mezzanine floor, which provides an additional one-third of useable space within the building - literally over and above the floor area.
Luckily for Jake and Bill, their limited company is approaching a break clause in the current lease, which gives it an opportunity to exit the property and its commitments under the lease.
Less fortunately for them, the market for small to medium-sized industrial units in their area is highly competitive because of the shortage of available units.
They tell Paula, their longstanding financial planner, that it’s “a seller’s market” at the moment. Nonetheless, they inform Paula that they would like to use some or all of their accumulated pension funds (of around £350,000) to acquire new premises from which their business can continue to trade, and indeed, expand.
Paula is pleased that the guys have borne in mind her previous guidance about the tax efficiencies and benefits of owning commercial premises through self-invested pensions such as self-invested personal pensions (SIPP) and small self-administered schemes (SSAS).
They tell Paula that it’s likely that they will need to spend around £300,000 in order to acquire premises of a suitable size.
The potential stumbling block
Paula is very familiar with the clients’ current rented property; their annual review meetings have taken place there for several years – in the office which is upstairs on the mezzanine floor.
Paula is also familiar with commercial property ownership in SIPP and SSAS, because a number of her business owner / manager clients have taken her advice and gone down this route in the past. Using her experience, Paula knows that it’s going to be possible for the pension(s) to fund a £300,000 property purchase, even if the property purchase price is subject to VAT, because the pension(s) could borrow funds to assist with the purchase if necessary (Paula had already alerted the clients to the fact that the clients’ company (or another connected party) could lend funds on commercial terms if it proved difficult to arrange borrowing from a commercial lender at the current time). Also using her experience, Paula asks Jake and Bill a seemingly odd question –
“Will the new property’s mezzanine floor be a permanent structure within the building?”
As far as Jake and Bill are concerned, one such floor is largely the same as another and many industrial units have them, so they are perplexed about Paula’s need to enquire about this. Paula explains that, depending on the nature of the mezzanine, it might be necessary to exclude it from the purchase by the pension scheme(s), thereby necessitating a Registered Valuer’s Capital and Rental Valuations.
Tangible moveable property
Paula points out that things that can be touched and that are movable (as opposed to immovable) represent “tangible moveable property” as far as HM Revenue & Customs is concerned, and that they are subject to tax charges if owned by a pension scheme. She further explains that some items are quite straightforward to identify – things like desks, chairs, computer equipment, company cars, vans and so on. On the flip-side, she stresses, some items can be tricky to identify. Those can include large structures such as wind turbines, solar panels and whole mezzanine floors.
Overcoming the stumbling block
Paula points out that things like solar panels on a building, and mezzanine floors within a building, should not be treated as tangible moveable property by HMRC, provided that they are integral to, and permanently fixed to, the building and cannot be removed without damaging the surroundings. Paula delights in highlighting that a wind turbine can be touched and moved, making it tangible moveable property!
Jake and Bill confine their property search to one which has a permanent mezzanine floor so that it does not need to be excluded from the acquisition by the pension scheme(s) and hence not excluded from potential rental income to the scheme(s).
Stephen McPhillips is technical sales director at Dentons Pension Management
