SIPP for Commercial Property

SIPP for Commercial Property

David Stirling explains how SIPPs for commercial property work.

What is a SIPP?

A SIPP is a self-invested personal pension. It’s basically a pension wrapper. It allows you to save, invest and build up a pot of money for when you retire. It’s quite flexible, so you can have different investments within the same SIPP.

Can I put a commercial property in a SIPP?

The main rules with a SIPP on property are that it needs to be of a commercial nature. It can include things like offices, industrial units, restaurants and hotels. There’s quite a long list of them.

Residential property like Buy to Lets are disallowed from being held within a SIPP. So if you’re thinking of investing in property with your pension, you would go down the commercial route.

What property can be put in a SIPP?

There‘s quite a long list of properties, including doctors’ and dental surgeries, nursing homes, petrol stations, factories, agricultural land… It’s quite diverse.

Who owns the property in a SIPP?

Effectively, the property is held by the trustee, which is the specialist SIPP provider. They would be officially the owner of it. Your pension pot technically is the owner of the property, as opposed to you personally.

Are there many SIPP providers in the UK?

There are a few, but it’s quite a specialist area. Some of the bigger banks do them, but it tends to be more specialist companies.

How much can a SIPP borrow to buy a property? How much of my pension can I use to buy commercial property?

Basically, you can use all of your pension to buy commercial property. If you have £150,000 and you find a commercial property at £125,000, you can use all of your pension to buy that.

If you had £100,000 in your pension and you wanted to buy a property at £150,000, that’s possible too. You can borrow a maximum of 50% of the SIPP value as a commercial loan, on top of your pension funds.

Do you pay Capital Gains Tax on a SIPP?

One of the beauties of owning property in a commercial SIPP is that there’s no Capital Gains on the growth of the value of the property while it’s in the SIPP. So, if you buy a nursing home, and it goes up in value over the 15 or 20 years you own it, Capital Gains won’t affect you when you go to sell the property further down the line. So it’s quite a good tax wrapper as well as a pension wrapper.

Can you hold rental property in a SIPP?

As long as the property is commercial in nature, yes. It needs to be a shop or an office that you can rent out to a business. Residential Buy to Lets are not typically allowed to form part of a SIPP but hostels or a Bed & Breakfast are potentially allowed in it. It’s a grey area.

You would need to speak to an advisor. They would then work with the SIPP provider to work out whether it would qualify or not.

What are the tax implications of commercial property held in a SIPP?

There is quite a bit to this. A commercial SIPP has a lot of great tax advantages – and as the property value grows it’s not subject to Capital Gains tax. The property also falls outside the state for Inheritance Tax purposes.

So, when the owner of the SIPP passes away, it can pass down intergenerationally. Also, if you’ve bought an office for yourself, or you rent it out to somebody else, the rental from that goes into your SIPP but it’s not subject to income tax, and doesn’t count towards your annual pension allowance.

For the right client, there are massive tax savings to be made there.

Is my SIPP part of my estate?

No – any pension or property in SIPP would fall outside your estate for Inheritance Tax planning.

What happens to property in a SIPP on death?

The remaining value of the SIPP can be passed on to beneficiaries and future generations until it is used up or taken as a lump sum.

You don’t lose your pension fund or your SIPP with a property. It moves on to your spouse or your dependents, whichever route you take with it.

What are the pros and cons of putting commercial property into a SIPP?

The pros are that it’s super tax efficient. It can help you build a really strong pension fund because of the tax breaks on the rental income, and Capital Gains Tax not being applicable.
There’s no income tax on the rent and no Inheritance Tax on the property either.

The cons are the usual things with rental properties. You can have rental voids, where the tenant doesn’t pay the rent. The SIPP can then approach you for the rent instead.

As with anything property related, values can go up as well as down, and also property is a non-liquid asset. So if you needed to take the cash out of the property – you need to sell it. It’s not an emergency fund. That money that would be quite hard to access.

How can an advisor help with SIPPs and commercial property?

The commercial SIPP world is a very specialist area. You do need the advice of an expert, you need a specialist provider and you need to have a certain attitude to risk.

We would look at that for you. It’s not for every person or their circumstances. But for the right person, who has high net worth and wants to diversify their pension funds in different areas, it can be the perfect thing for them.

We have lots of experience and expertise to help anyone interested in looking at a commercial SIPP. It’s a niche area and it’s a specialism of ours.

The value of pensions & investments and any income from them can fall as well as rise. You may not get back the amount originally invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Tax treatment varies according to individual circumstances and is subject to change.