Heritage Financial Advisers - Newbury Berkshire

Elaine is a dentist running a small but successful two-surgery private practice from a leased building. What started as a cold squat had grown considerably and as Elaine had taken on a part-time associate and hygienist she really needed to find premises that gave her a permanent base with the right image. The problem was she did not have a lot of capital.

What Elaine did have was a number of pension plans worth some £180,000 so we explained about how SIPPs could be used for a property purchase. The existing plans could be transferred into the SIPP (though each one was considered separately – there may have been good reasons for keeping the monies invested where they are), and the SIPP can borrow to complete the purchase.

Armed with that information, Elaine started to look in earnest for a suitable property and found a well located building with plenty of parking just on the edge of town near a main road. It had previously been used as a workshop but planning permission was granted for a dental practice.

Although the original property was run down that was reflected in its price of £240,000 and Elaine reckoned that with a further £60,000 or so of refurbishment, she’d end up with a very stylish and impressive property. We discussed all the pros and cons and after working through the numbers, she decided to go ahead.

So her SIPP purchased the property for £260,000 inclusive of purchase costs, using £180,000 from the proceeds of her existing pensions and borrowing the balance of £80,000. The SIPP also borrows half the refurbishment costs, taking the total mortgage loan to £110,000.

After completion, the SIPP owns the property and leases it back to Elaine’s practice at a commercial rent. She gets income tax relief on the rent at her highest rate, in the same way as if she were paying rent to an independent landlord. The SIPP uses the rent to cover the mortgage interest and other property related costs.

Elaine also decided to continue making regular pension contributions to the SIPP which will build up to provide a cash “cushion” or to help repay the mortgage loan. In around 10 years, the mortgage will be repaid and Elaine expects the building to grow in value.

When the time comes for her to retire, the property can be sold free of capital gains tax and the entire fund would be available to receive an income, either as an annuity or as an ‘unsecured income’. Elaine may also wish to take 25% of the total pension fund as tax free cash.

In fact, at retirement Elaine may decide to sell her practice but to keep the property in her pension. The new practice principal starts paying rent into Elaine’s SIPP, which is then used to cover Elaine’s unsecured income payments.

Paul (44) and Belinda (42) were married dentists running their own practice and looking forward to retiring when Paul reached 60. They had accumulated nine different individual pension arrangements as a result of advice from previous advisers and were also members of the NHS Superannuation Scheme (NHSSS). They had been thinking about pensions over the last couple of years and as they were now making good profits, they wanted to simplify things and set up a framework for their long-term retirement plans.

Five of the plans had performed poorly with little prospect of improvement in the future. Fortunately, they could transfer the cash values across to a new SIPP without any penalty. In all, these plans were worth around £400,000.

Three of the other policies had also performed badly but would have incurred penalties if transferred to another plan. However, after looking at the potential returns in a further 18 years, it was decided to bite the bullet now and move the monies rather than stay put.

One plan had performed quite well and now had a face value of £40,000. If it were transferred to a SIPP there would have been a penalty.

Transferred the proceeds of the first eight plans to new SIPPs, making a total cash investment of around £360,000
Left the monies invested in the existing plan with the existing provider but regularly review it with the intention of transferring it at a later date, when the penalty is lower or no longer applicable

Once consolidated, the total value of their SIPPs was £360,000. They also made a large single contribution as well as setting up regular monthly payments into their plans. We agreed a new investment strategy that reflected their current circumstances and because of their strong NHS pensions, they were happy to take a higher risk profile.

As a result, Paul and Belinda are happy that they now have the majority of their retirement portfolio under one roof and are reassured that it is now being actively managed. Each year we meet with them to review the investment strategy and ensure it remains in line with their changing plans.