Uk Pension Fund Wants To Buy A Thai Commercial Property

[torrenova]

Just thinking about how a UK pension fund (SIPP) can buy a Thai commercial building. The rationale behind this is future UK tax liabilities which could be used as tax relief into a SIPP for pension planning.

I have been talking to a SIPP provider whose product will happily allow (at this stage of the negotiations) funds to be used to buy non UK commercial property and even shares in non listed non UK companies. Obviously as a non Thai, the fund could not own title to the land but it could own title to the building. Quite how that would work I have yet to ascertain as I have not yet looked at splitting a building from the land it rests on in Thailand.

Now I know a foreign entity can own 100% of a hotel management company (not sure how this could be useful though) and there are dispensations for Bt100m or Bt500m investments but these are too large for my purpose. I'm thinking that a regular Thai company which can be 49% foreign owned, could own the property ? Of course, that presents problems because whilst the pension fund would be happy to buy 49% of the shares, it would not be happy putting up 100% of the funds for only 49% of the shares and the other Thais I have in mind for shareholders could not put up funds for the remaining 51%. As a principle though, I am not sure there are any real problems with this ? (apart from it being a business and thus being required to pay tax !).

Splitting the building from the land could help I think. Just say the value of the property was 50/50 land and building. The pension fund could own 100% of the building and the Thai company could own the land. The pension fund could then own 49% of the Thai company which owned the land and thus, it would own 50+24.5=74.5% of the total cost. It might be possible for the Thai shareholders to put up the remaining 25.5% of the total costs for 51% of the Thai company. Of course, in the unlikely event that the building was 90% of the value and the land only 10%, then the Thai shareholders would only have to put up 5.1% of the total cost which would be easy. Quite what evidence the pension fund would need to agree the value breakdown would need to be determined.

So on this basis, splitting the property from the land, it seems as though the pension fund could own more than 49% of the total cost of the assets.

The end result would be that the building would be leased to a third party who would pay rent to the pension fund. As the effective ownership would be all mine, though I understand there are some "arms length" issues to consider, the rent payable to the pension fund need not really be market rent. Certainly no-one is ever going to question what rent is being paid !

Once the transaction was completed, I would like to investigate the shift from a SIPP to a QROPS and therefore after 5 years, there would be no requirement to report any paperwork to the UK government and all pension assets would form part of my estate, tax free. My guess is that after 5 years, you can basically dispense with the QROPS and deplete your pension through share transfers to me personally as a draw down from the pension fund so that I would own 100% of the building and 49% of the Thai company which owned the land. Obvious preference share voting and income rights on the shares with back to back loans to the shareholders for their equity, essentially giving me 100% ownership and control and having shifted my UK tax liabilities into tax free investments in my name.

I welcome all comments and ideas. This is just on the drawing board but it would certainly appear possible or at least near possible with some tweaks here and there. Of course, if anyone can think of a better way, then please post up. Thanks.

[jackdawson]

talk to the out of work guys at lehman brothers . they owned a few . look where it got them .

[quiksilva]

There's nothing to stop foreign pension funds owning shares in an existing property fund, which in turn happens to own landed buildings. They can even own a majority.

However, the minimum size of the fund has to be THB 500 million and the original owner of the building can not own more than 30% of the shares. There are of course other SEC regulations that must also be followed. So its in no way easy and probably not worthwhile if its valued below the minimum level.

Rather than advise on ways to circumvent the system, the best rule of thumb remains to look at property assets that can be legally owned in your own name.

[123ace]

The challenge will be to find an investment grade property actually worth buying in the place.

[pkrv]

OP - As far as I can see everything you say is impossible -SIPP = UK and not even property there, except perhaps commercial RITS (or what ever, cannot be bothered to look this up) - the UK has already defaulted. You do know about the 50/55 age limit in April this year do you?

Give us a link please so that we can discuss - this is only polite on your part isn't it?

Edited May 6, 2010 by pkrv

[torrenova]

Just to quickly address a couple of points - I'll come back with more later.

This is UK pensions, through a SIPP.

I actually want to buy a property in Thailand anyway (I've lived there for years) and would do so anyway. This is just a way to offset tax liabilities through UK pension law, to fund that purchase, in my pension fund, not a company pension fund. The alternative would have been a purchase through a Thai company anyway.

It does not have to be investment grade property, only that it must be fairly valued.

SIPP rules do allow this. Some SIPP providers do not allow some investments in their SIPPs but the law applicable to SIPPs certainly does allow this type of property to be purchased. The issue is the Thai law as it pertains to foreigners owning land in Thailand.

pkrv - there is no link. This is my pension on a personal level. It is I who am attempting to work through the Thai law on land ownership. If Thai law permitted foreigners to own land, then it would not be an issue.