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Coronavirus – Can A Business Get Immediate Rent Relief From Their Own SSAS?

Martin Tilley is pleased with new HMRC guidance for SSASs with commercial property, in the light of the Coronavirus pandemic.

The Coronavirus pandemic is affecting businesses of all sizes, in most industries, right across the UK. A wide package of Government support for businesses and individuals are available although these may not be immediately available to counter the cash flow impacts in the very short term.

Rent on a commercial property might be one overhead where a company may look to make immediate cash flow savings. What does this have to do with pensions? HMRC has just issued new guidance, which could be of considerable financial assistance to businesses who lease their premises from their own pension fund.

SSAS with the sponsoring company as tenant

Often a Small-Self Administered Pension Scheme (SSAS) was established with a view to the scheme acquiring a commercial property that the sponsoring company could lease from the pension fund and operate its business from.

As a general rule, HMRC will at all times, expect the relationship between these connected parties to be maintained on an arm’s length basis. Further, the scheme’s trustees (who are likely to be the owner/directors of the business) must always act in the best interests of the scheme’s beneficiaries. This is one reason why SSASs can benefit by appointing a professional trustee alongside family members.

In the financial crisis of 2008/09 HMRC issued specific guidelines outlining the action that was expected to maintain that (arm’s length) relationship. They required that evidence of the tenant’s financial position was obtained from an unconnected party such as the tenant’s accountant before any concession could be granted.

HMRC guidelines – March 2020

It is pleasing to note that HMRC regard the Coronavirus pandemic as something far more wide reaching than the 2008/09 crisis. With UK plc effectively on shutdown HMRC guidelines issued in late March 2020 provide a more pragmatic approach to rent reductions/holidays. Trustees need not obtain any external evidence and may grant rent concessions with immediate effect. They have also stated that missed rental payments will not incur tax penalties, which in other circumstances they would.

That is not to say the Trustees should allow rental concessions without following the process of a prudent third-party landlord. Whilst evidence of financial hardship should be easy to obtain, they should also make sure that the business is reducing all possible overheads and that the pension scheme is not simply the creditor of least resistance.

They should also not be overly generous with their concessions. Whilst the term of this economic nightmare cannot yet be judged, it would seem prudent to review the situation at least quarterly in light of changes in circumstances.

Hopefully any deferred rent can be made good over the remaining term of the lease, but should it become necessary to write off any rental payments it will be important that the decision to do so has been correctly documented and all evidence on which that was made, retained. Again, an independent trustee will be able to add more weight to this process.

What about SIPPs?

A SIPP will not have a founder employer, but the tenant may be connected to the member in which case HMRC would expect the same commercial conditions to be maintained to those of a SSAS.

The difficulty with a SIPP is that the Provider will often act as sole trustee and may insist on the appointment of a commercial property manager. The compulsion to include these third parties may slow down any rent concession process and incur additional fees.

Third-party lessees

Where the tenant of the pension scheme is unconnected to the trustees or sponsoring employer, there is no underlying concern from HMRC as the trustees should still be able to act prudently in the interests of scheme members. Whilst maintenance of investment yield may well be important, this will need to be balanced against the implications of losing a tenant. Irrespective of their decision, a process similar to that of a connected tenant should be employed.

In Conclusion

SSASs continue to play an important role in strategies designed to preserve family prosperity in concert with family-owned businesses. To find out more on this subject contact Pension Director Martin Tilley on 020 8936 3970 or by e-mail to martin.tilley@hurleypartners.co.uk or visit our website at hurleypartners.co.uk.

Hurley Partners strongly recommends that individuals should seek suitable professional advice regarding the matters referred to in this document, which has been prepared for general interest only. Nothing in this document constitutes advice. Hurley Partners Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 8401891. Registered Office; 12 Conduit Street, Mayfair, London, W1S 2XH. © Hurley Partners Limited 2020