Free holidays for SIPP properties?

It’s been a few years now since the words ‘holiday’, ‘property’ and ‘SIPPs’ were commonly found together. Those of you in the business leading up to A-day will remember the frenzy of promoters pushing holiday properties in SIPPs, prompting Gordon Brown’s infamous residential property U-turn in December 2005.

What I’m referring to now is the ability of SIPPs holding commercial property to give their tenants a rent holiday. With unconnected tenants, this is relatively straightforward, as the standard commercial relationship removes the chances of unauthorised payments arising.

As I talked about in last month’s blog, HMRC has introduced easements covering rent holidays for the connected-party tenants commonly found within SIPP and SSAS properties. Usually when connected parties are involved, it is extremely important to carefully document any such agreement – including evidence from the company accountant of financial difficulty and agreement from a surveyor of the commerciality of the arrangement. HMRC relaxed these requirements for evidence originally from March until the end of June, and this has now been extended until the end of October. However, it is important to remember that this is just a holiday – not a rent-free period. There is nothing in the guidance published in pension schemes newsletters to suggest that the rent would not be due once the holiday was over.

Outside of the pension world, the Government has now also issued a ‘Code of practice for commercial property relationships during the COVID-19 pandemic This guidance sets out options’.that could be agreed to by both parties where the tenant is struggling to pay rent. The options on the table, amongst others, include full or partial rent-free periods, rental variations to reduce ongoing payments, and splitting costs of rent for unoccupied periods between tenant and landlord.

For those SIPPs with connected tenants who may be taking a rent holiday – possibly using the easement on evidence currently in place – it will be important that the correct steps are taken when the holiday is over. Failure to deal with the rent arrears in a commercial manner could still lead to unauthorised payments and tax charges on both the member and the pension scheme. Providing evidence of commerciality post-October will be crucial for connected-party SIPP tenants if they are doing anything other than paying back all the outstanding rent. Demonstrating financial difficulty where appropriate should not be too challenging, and if it is accepted that the Government’s code of practice extends to the SIPP market, then the door may be open for rent to be written off in some circumstances. This question has been put to HMRC and it would be great to see further confirmation from the pension team that SIPP landlords can follow the Government guidance, even with connected tenants and without the threat of unauthorised payments.

This article was previously published by Sipps Professional

Senior Technical Consultant

Lisa is an Economics graduate who has been in the financial services industry since 2003. Prior to joining AJ Bell in 2014 she spent nine years working in senior technical and consultancy roles at a major SIPP and SSAS provider. Lisa is part of our Technical Team, responsible for providing regulatory and technical analysis to the business and outside world. She is also a regular speaker at adviser events.

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