Buying a Woodland in a SIPP
A “SIPP” is a Self-Invested Personal Pension Scheme, which is in effect a way of putting money away for your retirement and additionally benefitting from that money not being liable for income tax. The government gives tax concessions on money put into pension products of this sort to encourage people to save for their retirement. SIPPs can be seen as “packages” which hold investments for when you draw a pension income. They have been regulated by the FSA since April 2007 and must meet certain requirements of the Inland Revenue (HMRC).
Generally, a SIPP is a pension savings device that allows you much more control over what your pension money is invested in. The SIPP can hold a wide range of assets including commercial or agricultural property and woodland/forestry property. There are, however, limits to the HMRC’s tolerance - residential property cannot be held directly in a SIPP.
Several people have recently bought woodlands from us in their SIPPs. Buyers need to get a valuation of the land to show that they are buying at or below the market value, and they will need to show that it is commercially managed. If you put your woodland into a Woodland Grant Scheme (administered by the Forestry Commission) you will want to use this to show that your woodland is being managed commercially. Tests of commerciality include: having a management plan which shows some commercial objectives; getting some advice from a professional manager, and it will help if you receive some income from timber or woodland products.
SIPPs are limited in what they can borrow and usually borrowing is limited to 50% of the fund’s value. Each SIPP has its own trustees and to set one up you will need an FSA regulated adviser, but the great advantage is that you have control over which assets are held within the scheme. There are now estimated to be about 250,000 SIPPs in operation in the UK.
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Discussion
Since the new rules came into force we have had a fair number of enquiries regarding SIPPs, SSAS and property purchase. The rules have not altered as far as woodland is concerned, you still have to have a commercial woodland, and not an amenity for yourself. There are ways to work around this. email me [email protected]
Hi Guys.
Just revisited this blog because I’m reviewing all my pension arrangements for the opportunities provided by the changes coming into force on 6 April.
Sorry that i did not reply to the requests for provider/adviser contacts. i haven’t revisited the blog until now.
The more perceptive among you will have guessed that my adviser was Justin, who has also contributed to this blog, and left contact details. I am more than happy to recommend you chat with him. I have a later email address if the one he has previously given doesn’t work.
Good Article. Has anyone converted a personal pension into a SIPP ? There seems to be very little impartial advice available. Can anyone point me in the right direction please ?
Thanks for a great article. I couldn’t resist researching the web a little more after reading this. I found alot of sipp sites and sipp providers ut couldn’t figure out which one i should choose. All of them said that they had the best offer for me……
I then began searching the web for an independent advicer who could tell me which offer i should look for. And i don’t know much about investment…
The site was http://sipptoday.co.uk. He helped me alot. So I just thought that i would share this with you.
Thanks again for a great article
Andrew, in my experience, no such knowledgeable SIPP provider exists. Sorry.
Can anyone recommend a ‘good knowledgeable SIPP provider’ for the purchase of woodland. I have spoken to a few and most seem a little in the dark regards woodland purchase.
Andy, Could you provide any details of SIPP providers you used? Thanks
These eco friendly SIPP investments are becoming increasingly popular.
We have recently had enquiries on http://www.sipps-now.co.uk for Green Oil, Teak and Bamboo.
This is a market that can only develop further in the next 12 to 24 months.
Just an addition to my comment on the 10th June to add my email address [email protected]
I sold my woodlands to my SIPP a few years ago. The process was pretty traumatic as fund administrators, lawyers, and valuers tried to come to a sensible solution.
[My grandad used often to recite the mantra that “two boys will do about a boy and a half’s work, three boys will do no work” (I was one of three brothers at the time). Experience has taught me that much the same is true of professionals.]
Nevertheless we did eventually achieve most of my financial objectives and I am satisfied overall with the result. I wanted to continue to enjoy the woodlands so took a lease back from the pension fund that allows me pretty much to continue as before. That solved the issue of tenant and income that Rob C raised and was, in fact, a fundamental piece of the jigsaw.
As a former tax consultant I was able to accept that governments can and do change the law relating to pension funds and inheritance taxes and that these changes may have unintended and damaging consequences. I am not sure that I would advise anyone who did not fully understand and accept these risks to undertake such a transaction. So far, my planned exit route is intact, although rather more expensive than anticipated when the sale took place. I hope this helps the discussion.
We are in the privileged position of having arranged a SIPP purchase of woodland some years ago for a client. It is not a straightforward process as you need to bring together valuers, solicitors and the SIPP provider, but is achievable. Even if you already own the forestry a SIPP can purchase it from you to release up valuable cash to you, which you could even re-invest into the pension to buy more forestry …… As Steve Seymour notes, you have to think through what you want to happen to the forestry when you die as part of the exercise. It seems that some advisers have not done sufficient digging and research if they do not know which SIPP provider will embrace forestry in their SIPP. I am happy to take enquiries.
Not only can a Sipp buy a woodland, but a SSas can also (small self adminstered scheme) this may be a more viable option (cheaper). The woodland has to be a commercially viable proposition, as HMRC may levy a tax charge if it is deemed to be purchased for the use and enjoyment of the owner of the pension. HMRC says that you can have your cake, but can’t eat it………
email me for more info/details [email protected]
I am an adviser specialising in pensions and work with numerous SIPP Providers. If any of you are still looking for help with regard to consolidating existing funds and specialist investments, do please get in touch – [email protected]
I was told by my adviser that I needed to show the woods could generate regular income, and to pay myself (or rather the SIPP fund) £100 a year for the sale of firewood, and this would be sufficient to get around the problem. Although I have still to put this into pracice, so they may find other problems yet.
I’ve been told by my SIPP provider (James Hay) that woodlands cannot be purchased by a SIPP. The reason: it needs a tenant and a regular annual income. Any thoughts on this?
Yes
Any luck on finding out how to transfer pension fund to sipp in a woodland. I have spoken to some advisors and they do not know of iots existance. Im sure there is, can I set up my own sipp as a trustee?
Lets see
Rob,
I am in exactly the same position. I want to release funds from an existing pension (which isn’t doing great) and transfer those funds to a SIPP that invests in woodland. Like you I want to find a financial adviser who understands what I am trying to do. Is there anyone out there who has done something similar and can give any advice?
thanks,
Dud
Hi,
does anyone have any info regarding the release of funds from an existing pension fund to be able to use this to purchase woodland? I have spoken to pension advisor who explains can get the fund release to buy commercial property ie. office, light industrial unit etc. but has not heard of anyone having the fund re-invested in woodland, and was not able to advise on this.
thanks,
Rob
I have a paid up AVC but I am still working. If I transfer the funds into a buying woodland through a SIPP and invest more funds into the SIPP as part of pension contributions. What happens to the ownership of the land on my death? At the moment the anuity rates offered are so poor I would need to live until I’m 95 before I would even get my stake back, and if I die after 2 years the insurance companies get the lot.
Essentially you’re buying the wood out of gross income rather than net income so for a 40% tax payer a £30,000 wood would only cost them £18k of their disposable income. Ditto for any borrowing.
If this became common I would expect fairly stringent tests of commerciality from the taxman
If commercially managed woodlands are exempt from capital gains tax (which I understand that they are) what is the benefit of placing them in a SIPP?
Has anyone used any other Financial Advisors not listed above to set this type of thing up? I have emailed a couple of the contacts above but have not received any response.
Nelis
8 January, 2016