It’s been a few years now since the words “holiday”, “property” and “SIPPs” were commonly found together.

Those of you in the business leading up to A-day will remember the frenzy of promoters pushing holiday properties in SIPPs, prompting Gordon Brown’s infamous residential property U-turn in December 2005.

What I’m referring to now is SIPPs holding commercial property having the ability to give their tenants a rent holiday. With unconnected tenants this is relatively straight forward, as the standard commercial relationship removes the chances of unauthorised payments arising.

As I talked about in last month’s column for SIPPs Professsional, HMRC has introduced easements covering rent holidays for the connected party tenants commonly found within SIPP and SSAS properties.

Usually when connected parties are involved it is extremely important to carefully document any such agreement – including evidence from the company accountant of financial difficulty and agreement from a surveyor of the commerciality of the arrangement.

HMRC relaxed these requirements for evidence originally from March until the end of June, and this has now been extended until the end of October. However, it is important to remember that this is just a holiday – not a rent free period. There is nothing in the guidance published in pension schemes newsletters to suggest that the rent would not be due once the holiday was over.

Outside of the pension world, the Government have now also issued a “Code of practice for commercial property relationships during the COVID-19 pandemic”. This guidance sets out options that could be agreed to by both parties where the tenant is struggling to pay rent.

The options on the table, among others, include full or partial rent-free periods, rental variations to reduce ongoing payments, and splitting costs of rent for unoccupied periods between tenant and landlord.

For those SIPPs with connected tenants who may be taking a rent holiday - possibly using the easement on evidence currently in place – it will be important that the correct steps are taken when the holiday is over.

Failure to deal with the rent arrears in a commercial manner could still lead to unauthorised payments and tax charges on both the member and the pension scheme. Providing evidence of commerciality post-October will be crucial for connected party SIPP tenants if they are doing anything other than paying back all the outstanding rent.

Demonstrating financial difficulty where appropriate should not be too challenging, and if it is accepted that the Government’s code of practice extends to the SIPP market, then the door may be open for rent to be written off in some circumstances.

This question has been put to HMRC and it would be great to see further confirmation from the pension team that SIPP landlords can follow the Government guidance, even with connected tenants and without the threat of unauthorised payments.

Lisa Webster, senior technical consultant at AJ Bell