Owners of rented non-domestic property invested in a SIPP or SSAS could be hit with a fine of up to £150,000 for non-compliance, under new minimum energy efficiency standards (MEES) that come into force from 1 April 2018.
A significant number of SIPP/SSAS properties are likely to be affected as the new rules apply to owners of commercial properties with an F or G EPC rating – the lowest energy rating category, estimated to be about 20 per cent of the market.
Leicester-based Westerby The Pension Specialist Limited, say that while MEES could be a potential financial headache for some investors, with the right advice, pension schemes could benefit from the changes and help the environment at the same time.
Westerby The Pension Specialist Business Development Director, Ian Jarvis, said: “While the new MEES regulations could involve a certain amount of investment to bring non-domestic properties up to the required standard, it could also bring long-term financial benefits to SIPP and SSAS pensions.”
Pension schemes that continue to hold F or G rated properties will have a maximum of five years in which to make sufficient energy efficiency improvements to meet the new standards. As properties with an F or G rating are likely to be deemed less desirable as an investment under the new rules, consideration should be given to the impact this could potentially have, not only sale values, but also on pension benefit calculations.
If a property held in a pension scheme is devalued by £20,000 because of a poor energy rating, then the tax-free Pension Commencement Lump Sum entitlement would be reduced by £5,000.
Ian Jarvis said: “While the new standards could be seen as a threat to some, many properties are occupied by the member’s own business. They will not only benefit from lower energy bills because of energy efficiency improvements but will also see an increase in the value of their investment. This in turn will have a positive impact on the long-term value of their pension scheme.”
Other changes brought in by the new rules mean that from 1st April 2018 owners of commercial properties with an F or G EPC rating may not grant a lease to a new tenant or renew an existing lease. Further, from 1st April 2023, the owner may not continue letting a property that is already let if the property has an EPC rating of F or G.
However, in some circumstances owners can apply for an exemption. These include properties where it’s not physically possible to make energy improvements, or the cost of improvements would fail the “7-year payback” rule. All exemptions must be registered on a national register and importantly, are not transferred to a new owner on sale. Penalties for non-compliance range from £5,000 to £150,000.
Ian Jarvis said: “The impact of the new MEES standards heralds a big step change in the way commercial property owners handle their portfolio of assets. Therefore, it’s vital that owners affected by the new energy standards take advice. Although energy improvements will have to be made, ultimately the cost should be to the pension scheme member’s benefit and also to the environment.”
The new MEES Regulations have been brought in as part of the Government’s commitment to achieving a 34% reduction in its CO2 emissions by 2020 (relative to 1990) and at least an 80% reduction by 2050.
For further information on holding commercial property within a SIPP or a SSAS, call Ian Jarvis, Business Development Director at Westerby The Pension Specialist on 0116 326 0183.
For further information on MEES visit: