Another area where pension schemes can be utilised is through property development. In simple terms, this means using the pension scheme to acquire land or commercial property (perhaps in a dilapidated state) and using its own funds to undertake development.

This might happen in broadly two scenarios:

  • Commercial property development.
    • The pension scheme would undertake either a new build project or a major refurbishment project to generate new commercial property investments that can then either be sold on or let out to prospective tenants.
    • Pension schemes can also be registered for VAT which means that where substantial amounts are being invested into the development, the VAT element can be reclaimed.
  • Residential property development.
    • The pension scheme can undertake a part-development of land or commercial property to residential property. It is important that the pension scheme does not stray into actual ownership of residential property, but it can be used as a means to make considerable progress in an overall development project. The property can then be sold out of the pension at an appropriate stage, potentially with the use of short-term finance, in order to complete the development.
    • These types of project can be complex, and it is important that anyone considering them seeks appropriate advice and assistance to understand how the mechanism works and how they might finance both the development and potential sale.

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