Buying Farmland with a SIPP

Many farmers struggle with the rising costs of livestock, increasing prices for cereal and are concerned about the potential loss of subsidies. So how can you develop your farm to make it more efficient especially when the cost of borrowing can be high and difficult to obtain?

The Problem

Judy’s family have been farming for generations and the couple are expecting their son, Mike, to eventually take over their farm. So Graham and Judy would like to purchase new milking equipment and add to their diary stock but they are unable to raise money from their bank at a sensible cost

Graham has various pension schemes that he has built up over the years these total £173,500. Judy has pensions from previous employments which total almost £100,000.

A Solution

By transferring their existing pension schemes into individual Self Invested Personal Pensions (SIPP) means that together they have pension funds of approximately £273,500, and can use some of this to purchase part of their existing farmland which would release sufficient cash to buy the stock and machinery they want.

A parcel of land was identified for purchase, this had to be valued so that the pension schemes knew they were paying the market price, the surveyor also worked out what the market rent would be on the land, as it is important that these transactions are carried out on a commercial basis.

Graham and Judy sign a tenancy agreement with the SIPP providers and will pay the market rent for the land. The rent paid by the couple will be a tax deductible expense for the business and will be received by their SIPPs, free of any tax, thereby increasing the value of their retirement pots.

Conclusion

So from being in a position where Graham and Judy were unable to expand and improve their farm. By transferring their existing pensions into one SIPP each they were able to use the proceeds within the SIPPs to purchase existing farm land, thereby, releasing capital for them to proceed with their plans, at an affordable cost, with the rent going back into their pension pots rather than being paid to a third party lender.