With the effects of Coronavirus on care homes evident for all to see during this pandemic, there is a new demand for care homes for respiratory conditions and new Covid-friendly care homes.

We are seeing clients who operate in this space establishing new schemes, submitting planning applications, and even starting new-builds. This sector looks set to boom and using pension schemes as the vehicle for the development makes perfect sense.

Looking a few weeks down the road, the prime minister’s announcement on 30 June that property planning laws were changing in September could create opportunities for pension scheme investment.

In his announcement Mr. Johnson outlined a reform to the current system which will enable buildings and land in town centres to change use without planning permission. Existing commercial properties, including newly vacant shops, will be able to convert into residential housing more easily.

As mentioned above, a UK pension scheme is not permitted to hold residential property but it can pay for the conversion of commercial property into residential provided the property is removed from the pension scheme before it becomes “habitable” (when the certificate of habitation/completion is issued). 

Whilst it provides challenges, there are six possible ways of doing this:

1. The pension fund sells to a cash buyer before the conversion is complete – the completion then takes place outside of the Ssas.
2. The pension scheme members or sponsoring company buy the incomplete property from the Ssas at market value, finish the conversion and sell it. Whilst there may be stamp duty and legal costs involved, this will leave the capital appreciation in the pension fund and avoid Capital Gains Tax.
3. The pension scheme sells the incomplete property subject to a deferred consideration contract. In this way it is removed from the pension fund before completion but buyer doesn’t have to pay the bulk of the purchase price until the conversion is complete allowing them to finalise their mortgage.
4. Conversion projects are carried out in bulk by a number of pension schemes or other parties acting as a syndicate to ensure the underlying property qualifies as a genuinely diverse commercial vehicle (as defined by HMRC) and is not affected by the usual residential property rules.
5. The pension scheme buys and demolishes commercial property then sells the land to a developer for a tax-free capital gain.
6. A Ssas can lend up to 50 per cent of its fund value to a sponsoring company which uses the money to purchase/convert the property and repay the loan to the Ssas on sale. These loans have a 12-month window before repayments must commence.

These new rules may lead to a new surge in activity for pension scheme property investment while helping to contribute to the government’s vision of both transforming the high street and generating activity to assist with economic recovery.  

In conclusion, pension scheme property investment is a vast and varied topic and each point made here warrants an article in its own right but I do hope this will act as a flavour of what is possible and why it makes sense.

Richard Mattison is a director at Whitehall Group