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Using a SIPP to Buy a Commercial Property

The term SIPP stands for Self Invested Personal Pension. A SIPP offers a greater degree of investment choice than would be available from a traditional pension provider and is designed for anyone looking to manage their own retirement savings and who would feel comfortable regularly reviewing their own investments.

Using a SIPP to Buy a Commercial Property

The range of investments that can be held in a SIPP are wider than those permitted in a personal pension scheme and includes the option to invest in commercial property.

The SIPP does not need to cover the complete value of a potential property investment as it is permissible to borrow up to 50% of the value of the scheme, which caters for smaller pension fund amounts.

What Type of Property Can I Buy Using A SIPP?

A SIPP can own a commercial property outright, but is subject to restrictions when investing in a residential property.  These restrictions mean that SIPP property investment is restricted to commercial property.  You can buy freehold, leasehold or commonhold commercial property in the UK and permitted commercial investments include, but are not limited to business premises, offices, factories, care homes, shops and hotels etc.

If your SIPP is being used for land purchase next to land already owned by you or someone connected with you, a valuation will always be required to confirm that your SIPP is paying a fair ‘market price’.

Advantages of buying commercial property through your SIPP include various forms of pension tax relief on commercial property,  and using a SIPP is usually the most tax-efficient way of buying business premises.  Key advantages include:

  • Your rental will be a tax-deductible business expense.
  • Exemption from capital gains tax when the property is sold.
  • Rental payments can be re-invested in the SIPP.
  • You do not need to pay income tax on any rents you receive.
  • The property will form an asset of your SIPP and therefore your creditors will not have access to it in the event of personal or business bankruptcy

As with all investments there are certain risks to be aware of including:

  • The occupying business must pay market rent even if it’s your own business.
  • You will incur various commercial property SIPP charges including legal and surveyor fees etc.
  • You’re responsible for the upkeep of the property whether or not it’s occupied.
  • Can be higher risk than a normal pension if you’re not an experienced investor.
  • The price of commercial property can fall as well as rise.
  • Challenges selling a property in an illiquid market.

Transferring Commercial Property

You can also transfer any existing commercial property you own into your SIPP, essentially using this asset to make a pension contribution in place of a cash lump sum. The value of the property will then be invested, and you’ll get tax relief on the transfer.

With respect to the transfer of personally owned property, it is important to note that this will be subject capital gains and stamp duty based on the market value of the property at the point of transfer.

Can I hold a workplace pension and a SIPP?

In a word, yes!  You can have a workplace pension and a SIPP at the same time. You do not need to transfer your workplace pension into the SIPP.  If you do decide to transfer your pension, be sure to check your current pension benefits and ensure these will not be lost by performing the transfer.

Putting commercial property into a SIPP has other risks and restrictions not covered in this article, but if this is an option you’d like to explore, you will need to take professional advice.  If you are interested in learning more about whether buying a commercial property in your pension is the right thing to do, call us on 0333 202 6442 or contact us here. We work with a firm of trusted independent financial advisers and would be happy to provide introductions where necessary.

*The above is based on our understanding of current legislation and HMRC practice, all of which are liable to change without notice. The impact of taxation (and any tax relief) depends on your individual circumstances.

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