Buying property at auction via a SIPP

Bids at the ready!

Buying a property at auction can be a fairly complex process, operating in very tight timescales. Pre-planning is essential if this is the preferred route to invest. It is essential to engage with Curtis Banks as soon as possible prior to the auction.

The customer bids for the property on behalf of their SIPP

In order to do this, Curtis Banks would need to receive and approve all due diligence information before the client can place a bid at auction. This includes, but isn’t limited to:

  • a valuation report
  • an environmental search
  • a report on the legal title
  • a copy of any occupational or long leases

The appointed solicitor and valuer would provide this information to Curtis Banks. You can find a more detailed list of our due diligence requirements in our Property Guide.

Assuming that Curtis Banks could complete the due diligence checks prior to the auction, the customer would be authorised to bid on behalf of the SIPP at auction, up to a pre-agreed value dependent on the cash value of their SIPP. Assuming that the customer is successful at auction, the SIPP would pay the deposit monies (usually 10% of the purchase price) to the auctioneer, and the customer would sign the contract on behalf of the SIPP. This process is ‘exchanging contracts’, legally contracting Curtis Banks on behalf of the SIPP to complete the purchase.

The SIPP would then have a set period of time as specified at auction (typically 30 days) before completing the purchase. It is important to note that the typical timescale for a property purchase is upwards of 16 weeks and it is therefore unlikely that the SIPP would be able to complete due diligence within a much smaller timescale before auction. Curtis Banks are heavily dependent on third party professionals to provide the required information to us for review.

The customer bids in their personal name, before selling the property to the SIPP

We often find that this process is followed in cases where it isn’t possible for Curtis Banks to complete the required due diligence before the auction date. In this case, the customer would bid for the property in their personal capacity, and (assuming they were successful at the auction) they would personally pay the deposit and exchange contracts in their name.

The SIPP would then begin the due diligence process, with a view to assigning the contract to Curtis Banks and completing the purchase within the time period specified in the contract. If this timescale couldn’t be achieved, the customer would be legally obligated to complete the purchase of the property in their personal capacity. The SIPP could not fund this transaction nor any associated fees. To proceed with this option, the customer would need to be able to pay for the property and transaction costs themselves.

The customer could then look to sell the property to the SIPP. There are some additional considerations here:

  • In order to comply with HMRC regulations, any connected party transactions must take place at market value as defined by a regulated valuer. This price may differ from the price the client paid at auction.
  • Assuming that the property purchase price is in excess of the Stamp Duty Land Tax (SDLT) threshold (currently £150,000) then the customer would personally pay SDLT on their purchase, and the SIPP would also need to pay SDLT on the purchase by the SIPP. This outlay cannot presently be reclaimed.
  • If due diligence requirements cannot be fully satisfied, the SIPP would be unable to acquire the property. SIPPs operate in a highly regulated environment and as such, have more stringent due diligence requirements than a personal purchaser may have. For example, if the environmental report highlights historic contamination, the risk of which could not be mitigated, Curtis Banks wouldn’t be able to acquire the property.

The ability to purchase property at auction is one of the surprisingly flexible options available through SIPPs. If you have any questions or would like to talk to us more about the opportunities available, please click below to find the contact details for your local business development manager, who can provide a fee free assessment of a proposed SIPP property investment.