21 June 2016

Stamp Duty changes make SIPP and SSAS more attractive

The growth in popularity of SIPP and SSAS investments has been given renewed impetus following the Stamp Duty changes announced in the 2016 Budget.

These types of investments are sought-after because of their broad suitability in allowing access to a wider choice and type of investment whilst still benefitting from the generous tax allowances enjoyed by pensions.

One of the most obvious additions to a SIPP or SSAS portfolio is commercial property.

Investment in residential property is not permitted, however, for example if you are self-employed you could use your SIPP (Self-Invested Personal Pension) to help buy business premises.

Alternatively, a SSAS (Small Self-Administered Scheme) is a means by which the directors of a business can set up an occupational pension scheme to invest in property either for use by the business or separate investments.

The 2016 budget reforms further promote investment into SIPPs as a result of the removal of the “slab” structure for SDLT and its replacement with a “slice” system.

The “slice” system is an incremental system more akin to income tax and has the consequence of reducing Stamp Duty on properties worth less than £1.05m.

Previously, commercial property acquisitions paid Stamp Duty on a “slab” system, which meant that SDLT was levied at a single rate based on the price paid for the transaction and tax would be paid on the whole of the price.

For example, previously, a property acquired for £285,000 would pay SDLT at 3% on the full £285,000 – that is to say £8,550.

Under the slice approach:

  • there is no SDLT on commercial property acquisitions up to £150,000;

  • the rate is 2% between £150,001 and £250,000;

  • the rate is 5% above £250,000, but only on so much of the acquisition cost that exceeds £250,000.

Therefore in this instance the SDLT payable would be £2,175, a saving of £6,375.

As a result, any transactions with a price of less than £1.05m will save SDLT under the new regime. This is an extremely positive boost for SIPPs, which tend to be used by smaller investors.

Therefore it is not hard to see why SIPP and SSAS investments are becoming increasingly popular, particularly among business owners and shareholders.

If you would like more information, please get in touch with us. Investments in property can be complicated, so it is important to seek expert advice early on. We will guide you through the process and find the best solution for you.