Getting around the restrictive borrowings rule

Keith Phillips is a mechanic and owns a small motor repair business from a garage that he rents; he has a ten year lease with a three year rent review clause. His landlord is moving abroad and has approached Keith to see if he wishes to purchase the garage for £120,000.

Keith is very interested.

He visits his bank manager but he doesn’t know where he could raise the deposit that the bank would require of £30,000 ie 25%. His bank manager has suggested that he remortgages his house to raise the deposit but his wife Susan has ‘put her foot down’ and said absolutely not.

Keith is worried about his landlord selling to the local builder who would demolish the garage and build a couple of houses on the site. Drinking in his local pub that night, he starts chatting to one of his neighbours Janet about his dilemna. Janet asks Keith if he has a pension provision. Keith has, as his father insisted that he put 10% of his salary into a pension scheme and he has done since he came out of his apprenticeship at the age of eighteen. Even when things were tight on the birth of Rose and Lily his two daughters, he continued paying the contributions. Janet tells Keith to contact his financial adviser Richard and discuss the feasibility of buying the property using his pension scheme.

Richard informs Keith that he has a transfer value of £60,000. If he was to transfer this to a SIPP he could borrow a further £30,000 within his SIPP and then a further £30,000 personally. He went on to advise that the borrowings would have to be taken from a lender who understands this transaction.This would result in Keith owning three quarters of the property in the capacity as a trustee of his SIPP and one quarter personally.

Keith was delighted and sent Janet a huge bunch of flowers.

The value of investments can go down as well as up, so you could get back less than you invest. To help you make a decision it is important that the risks and commitments are understood and acceptable to you. The products or services referred to may not be suitable for everyone. If you are unsure of the suitability of any product, you should contact a / your Financial Adviser.

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