Barnett Waddingham Sipp · CAS-34951-B2T0

CAS-34951-B2T0

Ombudsman’s Determination Applicant Mr E

Scheme Barnett Waddingham SIPP (the SIPP)

Respondent Barnett Waddingham SIPP LLP (BW)

Outcome

Complaint summary

Background information, including submissions from the parties In December 2011, following advice from an independent financial adviser (IFA), who did not work for BW, Mr E invested in the SIPP. BW is the administrator and Trustee of the SIPP. After the commencement of the SIPP, Mr E tried to purchase some agricultural land, but the sale did not go ahead as the plot was deemed unsuitable by BW. This was because the piece of land was not commercial but belonged to a residential property.

In July 2013, the SIPP purchased the Property. At the time, the Property was used for commercial storage, but it had planning permission for it to be converted to two residential dwellings.

On the property purchase questionnaire (the Questionnaire) that Mr E signed on 6 June 2013, he ticked that the Property did not have a residential element. On the Questionnaire Mr E also said:

“…The short term plan is to make improvements to the roof, windows and insulation and offer the present tenant a short term rental.

1 CAS-34951-B2T0 The long term plan is to apply to Kings Lynn and West Norfolk Council for a change of use from commercial to one residential property. If this is not successful the Hall will be converted into two residential apartments…Before completion of the residential conversion/occupancy the property will be sold…”

In October 2013, Mr E commenced converting the Property to a residential dwelling. Following this, Mr E sent BW an invoice for the VAT returns between 1 November 2013 and 31 May 2014.

On 28 July 2014, BW wrote to Mr E and said:

“…I am aware that you are undertaking a project to develop the SIPP owned property and convert from current use as commercial premises to a residential dwelling. I appreciate there are likely to be many further such expense requests, so I thought it would be a good idea to set out the two main option [sic] available to you. This will ensure we can settle expense request [sic] far more efficiently ongoing…”

On 8 June 2018, Mr E informed BW that he wished to sell the Property. This resulted in exchanges between BW and Mr E concerning the VAT payable on the sale. There were also exchanges between Mr E and his IFA concerning him selling/leasing the Property.

On 27 June 2018, Mr E instructed his solicitor to inform BW of his intention to lease the Property. Mr E had the Property valued, and on 13 September 2018, he sent the valuation to BW.

Following this there were further exchanges between Mr E, his IFA and BW concerning the Property. On 3 December 2018, Mr E had a meeting with his IFA and BW. On 24 December 2018, BW wrote to Mr E. In summary it:

• informed him of the taxation consequences following the Conversion;

• informed him that the Property needed to be disposed of;

• informed him that rental income needed to be charged on the Property;

• detailed the results of its enquiries concerning the VAT issue and appointment of an IFA; and

• detailed the additional information it required from Mr E.

Subsequently, there were further exchanges between Mr E and BW concerning the rental income from the property, the sale of the property, the proceeds of the sale and the tax liability.

2 CAS-34951-B2T0 On 21 April 2019, Mr E complained to BW. In summary he said:-

• The Property had outline planning consent for a change of use to residential in 2011, which was prior to the recommendation of his IFA to place this asset into a SIPP.

• The Property was bought by BW, which was provided with the sale particulars in the first instance showing the market value of the Property, and that there was residential planning consent. At that point, BW should not have allowed the purchase of the Property to go ahead.

• An analysis and recommendation report (the Report) his IFA prepared in 2015 said:

“The property purchased within your SIPP is in a state of disrepair at the moment. You purchased the property for £105,000 and it is in need of both new roof and floors… you feel that by spending around £45,000 on renovations that property will be in a good state to either sell for around £200,000 or you will rent it out which ever happens first.”

• The Report did not say that renting the Property would not be allowed within the SIPP.

On 9 May 2019, BW replied to Mr E’s complaint. It provided the definition of a residential property as detailed within HMRC’s Pensions Tax Manual. It also provided some additional comments, and these are summarised below in Paragraphs 14 to 24.

From the information supplied to it at the time the Property was acquired, it was clear that none of the definitions of a residential property applied. Mr E completed the Questionnaire requesting that it considered the purchase of the Property. In the Questionnaire, Mr E described the property as a “Warehouse (Storage for local shop)” and said:

“The hall is used by the present owner’s grandson for storage of windsurfing and water sports equipment. The short term plan is to make improvements to the roof windows and insulation and offer the present tenant a short term rental.”

The use of the Property for a warehouse or storage would not meet one of HMRC’s definitions of a residential property. The building was clearly not being used as a dwelling. It was also clearly not suitable for use as a dwelling, as demonstrated in the various pictures that were on the sales particulars produced by the Estate Agents.

BW allowing the Property to be acquired within the SIPP did not give rise to the tax liabilities that were due. The holding of a property with residential planning permission within a SIPP would not of itself, give rise to any taxation. The tax liabilities due had arisen because of the Conversion. There clearly could not be an argument that the Property was not now suitable for use as a dwelling, given the fact that the Property had been let out by Mr E’s wife as a holiday home. 3 CAS-34951-B2T0 At no point had Mr E advised it that any substantive conversion works of the Property were underway, nor of Mr E’s wife’s intention to let the Property out. Mrs E had no interest in the Property and so was not legally entitled to let it out. BW and Mr E were the legal registered owners of the Property, so neither works to the Property, nor letting of it could occur without its consent. Had Mr E consulted with it on these points, it could have guided him and helped him to avoid the situation that he was now in.

It considered the extent to which it knew about the Conversion, and any guidance or warning it had given to Mr E. In this regard it said that it was aware of his intention to convert the property from the comments he had made in the Questionnaire (see paragraph 5 above).

From Mr E’s comments, it was clear that he was aware of the need to sell the Property from the SIPP prior to the Conversion. BW had written to Mr E’s solicitor on 26 July 2016 and said:

“To clarify, the SIPP should not own residential property and therefore, the sale should be completed prior to any redevelopments being completed which could mean that the property can be considered a habitable dwelling.”

4 CAS-34951-B2T0

Summary of Mr E’s position

5 CAS-34951-B2T0

BW’s Position

6 CAS-34951-B2T0 Adjudicator’s Opinion

Mr E did not accept the Adjudicator’s Opinion and in response said in summary:-

• From the beginning of the review, it was clear that the Adjudicator had not grasped the basics of the case by referring to an IFA. The IFA referred to is actually the National Farmers Union Mutual (NFU Mutual) which had been his pension provider for 36 years.

• The NFU Mutual was his adviser regarding the SIPP and the purchase of the Property. He had made it clear to the NFU Mutual that his intention was to convert 7 CAS-34951-B2T0 the commercial property to residential. These facts were forwarded to The Pensions Ombudsman in the first instance. He has provided evidence that the NFU Mutual and BW were working together to provide SIPPs.

• As the administrator of the SIPP, BW should have made sure the NFU Mutual had given the correct advice in the first place. BW never sent one of its advisers to discuss the SIPP. All one to one meetings he had were with the NFU Mutual. The only exception was the meeting on 3 December 2018, when things had already gone wrong and no NFU Mutual representative was available for advice.

As Mr E did not accept the Adjudicator’s Opinion, the complaint was passed to me to consider. Mr E’s further comments do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Mr E.

Ombudsman’s decision

8 CAS-34951-B2T0

SIPPs can directly hold commercial properties such as offices, shops or industrial units, but residential property is not permitted, except as referred to in paragraph 51 below.

There are some exceptions to the rules which allow specific types of residential property to be held. For example, a SIPP can hold commercial property with a view to converting it to residential property. However the SIPP must sell the property before it is used, or suitable for use, as a residential dwelling.

These exceptions are tightly controlled by HMRC, and challenging to administer, which is why some SIPP providers prefer to steer clear of property containing any residential element.

Anthony Arter

Pensions Ombudsman 30 June 2022

9