We are sending you this update to make you aware of a number of matters regarding property held in the pension scheme that you have with us. Please read the update carefully and take any necessary steps to ensure you continue to comply with the requirements of pension scheme property ownership.
As you are aware, you are the property manager of any property held in your scheme (unless you employ a professional property manager to manage your scheme property). You are ultimately responsible for the day to day management of the property and for meeting any property ownership requirements.
Energy Performance Certificates (EPC) – changes from 1 April 2023 requiring all let properties to have an EPC grade A – E
As you may already be aware from 1 April 2018 it became unlawful to let a commercial building with an energy efficiency rating of F or G unless one of a small number of exemptions applied. That was brought in under the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007. So any new lettings completed since 1 April 2018 must have an EPC grade of A-E.
From 1 April 2023 this will be extended to apply to all existing leases. This means that by 1 April 2023 all let properties in schemes must show a valid, in date EPC with a rating of A-E.
Please check what EPCs you currently have for your property(/ies). If they are out of date, or you do not have one then one must be obtained. For any that are a grade F or G, the necessary recommendation steps must be taken to improve the grading to an A – E.
If you have not already done so, please provide us with a copy of any EPCs that you have so we can update our records. Please also contact us if you have any issues obtaining an EPC, or where the grade is below an E.
Insurance (increased rebuild costs) – make sure you check your cover
Following on from our last Property Mailshot (in May 2021) we highlighted the hardening of the commercial property insurance market. We had seen insurers increasing the amount of information required to provide quotations, delays in obtaining quotations and increased premiums.
We are all aware of the current high rates of inflation. Our block policy insurance broker, Lockton, have also made us aware that there have been significant increases in the costs associated with property building works. As a result, please make sure that you are satisfied that the level of your existing insurance cover for rebuild/reinstatement costs are sufficient.
All members (whether under our Lockton block policy or where your own chosen insurance is in place) should review cover and check to make sure that the declared values / reinstatement / rebuild level of cover is correct – bearing in mind the increased costs at present. As always professional advice should be sought and a valuation obtained if you are unsure about the level of cover required.
If you hold insurance with Lockton please contact us if you wish to make any updates to your cover in light of this. If you have your own insurance please provide us with a copy of any updated policy if you do make any changes.
HMRC – rules regarding rent payments from connected parties – a reminder
Where a pension scheme lets its property to a “connected party”, such as the member’s own business, then there are strict rules that apply. These rules include the requirement for rent to be set by an independent red book valuation, for the tenant to pay its rent in full and on time, and the rules prevent the pension scheme allowing outstanding rent to be deferred or written off.
However, during the first phase of the pandemic, HMRC recognised that some businesses were encountering significant hardship and some allowances were made that relaxed the usual connected party requirements. For example, if a connected tenant was able to evidence that they were unable to meet their rent payment obligations, then rent deferrals were permitted in some cases.
However, HMRC have now issued guidance reminding providers and members of the usual pre-pandemic requirements regarding connected party transactions. Therefore connected party transactions must be treated as if they are on an arm’s length basis, with rents set by independent red book valuation, and all rent due to the scheme must be paid in full (this is the case in all cases, bar very few exceptional situations).
Scottish Property – be aware of this change if you have a Scottish property in your scheme
Under the Land Reform (Scotland) Act 2016 (Register of Persons Holding a Controlled Interest in Land) Regulations 2021 (‘the Regulations’), from 1 April 2022 a change to the Scottish property title register came into force. It requires all property to have (controlling) interested parties noted on the title with the aim of it being clear from the title who owns or controls a particular building or piece of land.
Any member who holds Scottish property in their scheme is being asked to review their title to ensure ownership is properly noted. Legal advice may be required to ensure the new title requirements are met.
Property Regulations/Legal Requirements – please be aware of responsibility for these
Where a property is let, the Lease usually specifies that compliance with laws and regulations in respect of the property fall to the tenant. However that is not always the case, it depends on the terms of the Lease/Licence and if there are any shared or communal areas these generally remain the duty of the property owner. If a property is vacant then regulations will remain with the owner.
The type of regulations that need to be considered and met are Fire Risk Assessments, Gas and Electrical Safety, Asbestos management, Legionella (water) management, and many others may also apply. It is your responsibility to ensure you establish what is required for your property and make sure any requirements/regulations are met.
There is also a duty on property owners to be forthcoming with information to their insurers, with details of reports or regulations in place so we would also urge you to provide any such details to your insurer. If your insurance is under our block policy with Lockton please contact us with the relevant information and we can forward this on to them.
Vacant Property – what happens where there is no tenant?
It remains the case that there are a higher than usual number of vacant commercial properties across the country. If your scheme is holding a vacant property at any time (unless it is being developed or there is an imminent plan to sell) you must actively market the property and keep us and any relevant insurer up to date with the occupation of the property and you must adhere to any relevant vacant property insurance conditions.
When the property is vacant the pension scheme will be liable for business rates (once any empty property rate relief period has ended) and will also be liable for any service charges and standing charges for utilities etc. You must make arrangements for these to be directed to the pension scheme for payment whilst the property is vacant.
It is also important to be aware that if the property is vacant all responsibility for compliance with regulations such as fire safety and asbestos fall to the pension scheme. You must ensure that these are fully complied with.
Once a new tenant is found and you have notified us, we will provide you with our Property Letting Guidance Notes and Letting Form for completion.
Residential property – you must not hold residential property in your pension scheme.
We always like to take the opportunity to remind members that taxation rules still make holding residential property in your pension scheme prohibitive (bar a very few exceptions).
Generally speaking schemes cannot invest in taxable property . Taxable property consists of residential property and most tangible moveable property. In respect of property the list includes:
- a building or structure that is used or suitable for use as a dwelling.
- any related land that is wholly or partly the garden for the building or structure,
- any related land that is wholly or partly grounds for the residential property and which is used or intended for use for a purpose connected with the enjoyment of the building,
- any building or structure on any such related land,
- in limited situations a hotel, which includes an inn, or similar accommodation, will be counted as taxable property though this will only be where it provides accommodation rights such as timeshare. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm125200
- a beach hut
- any building specified in Regulations as residential property.
Pensions Tax Manual on taxable property is at: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual
Please contact us if you have any concerns or queries regarding the above.
About this document
This update is based on our understanding of pension’s law and regulation.
Every care has been taken to ensure that it is correct. It is issued by DP Pensions Ltd for use by our pension clients and their advisers.
Please note that DP Pensions Ltd are not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how this legislation may affect you personally.
No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.
If you have any queries regarding the information in this update and how it affects your circumstances then please contact your financial adviser.