Before we get into the pros and cons, let’s start with what a SIPP is:
- A SIPP stands for a Self-Invested Personal Pension, it has all the tax advantages of a pension but also allows access to a wider choice of investments.
- A SIPP can buy and invest in UK commercial property directly. This includes any freehold or leasehold commercial business such as; offices, factories, pubs or shops.
- A SIPP cannot purchase a buy-to-let residential property.
- Your SIPP can take out a mortgage to buy a commercial property but can only borrow up to 50% of the SIPP’s value from a lender.
- It is possible for a group of people to combine the funds held in their SIPPs to buy properties jointly.
- Once a property is purchased, the company renting the commercial property pays rental income to the SIPP at market rate.
What are the key benefits of buying a commercial property through a SIPP:
- The property within the SIPP does not pay Capital Gains Tax on sale.
- The rental income received is free of income tax.
- If you own the company that’s paying the rent, it is treated as a tax-deductible business expense.
- The rent received can be re-invested and build up your retirement pot.
What are some considerations of buying a commercial property through a SIPP:
- If the property is the only asset within the SIPP, the SIPP lacks diversification and at risk if not performing well.
- You may not be able to sell the property at a time when you need to access the funds.
- Purchasing a commercial property within a SIPP includes various charges such as legal fees, surveyor fees and SIPP administration fees.
- You’re responsible for the maintenance of the property and any improvements are to be pre-approved by the SIPP trustees.
If you’re considering purchasing a property through a SIPP, we offer a free consultation on what is required and how the process works.
