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        Updated: April 08, 2024

        SIPPs and Buy to Let Properties

        Wondering if you can invest in buy-to-let property through a SIPP? This guide will tell you everything you need to know.

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        The beauty of having a SIPP is that you’re able to hold a wide range of asset classes in the tax-free wrapper – and as such, a lot of pension savers want to know if they can include buy-to-let investments in their portfolio.

        This can be possible, but it’s much more complex than if you were making standard investments, and there are additional rules, regulations and tax implications you’ll need to factor in. To help guide you, this article will tell you everything you need to know about SIPP buy-to-let investment so you can make an informed decision.

        Can you invest in buy-to-let through a SIPP?

        Technically yes, but if you’re putting a standard buy-to-let or residential property in a SIPP, your investment would be considered an unauthorised payment and so this would be deemed an  unviable option for most people.

        This is because there can be an unauthorised payment charge of 40% applied to the value of the unauthorised payment, with an additional 15% applicable if the unauthorised payment surcharge is applied (55% in total).

        There is also a scheme sanction charge of up to 40% that can be levied against the scheme administrator. However, there are other ways to invest in buy-to-let property through a SIPP, but you’ll likely need to do it indirectly and strict exemption criteria must be adhered to in order to avoid the investment being classed as an unauthorised payment.

        What are the alternatives?

        Due to some of the restrictions on direct buy-to-let investment within a SIPP making it unfeasible, here are a number of options still available to you for this type of asset:

        You may not be able to use a SIPP for standard residential property, at least not without a tax charge, but a way around this could be to invest in property funds instead. Open-ended residential property funds allow you to invest in bricks and mortar, or in other companies that invest in property.

        Real estate investment trusts (REITs) invest in property themselves and as such are a popular option that offer exposure across a whole range of property assets. These trusts offer a convenient method of investing as they can simply be bought and sold on the stock market, much like any other fund you invest in via your SIPP.

        Just make sure to steer clear of unregulated property schemes, particularly if they’re overseas or the returns seem too good to be true. You want to make sure that you’re covered by the Financial Services Compensation Scheme (FSCS) and that you’re not dealing with a scam – it can sometimes be difficult to tell, but the guidance of an expert pensions advisor can help clear things up.

        Another way to invest in property through your pension could be to opt for commercial property rather than residential.

        Such properties – including any freehold or leasehold commercial businesses such as offices, factories, pubs, shops or agricultural land – can be placed directly into a SIPP without being considered an unauthorised payment, and could be an option for those who would prefer direct investment without the drawbacks.

        You can again invest in a commercial property fund if you choose, or buy commercial property directly to be held in your SIPP. If you’re a business owner, you may even be able to put your own commercial premises into your SIPP, offering a highly tax-efficient option.

        Although you can’t invest in residential property directly, you may be able to if it has both residential and commercial uses, such as a shop with a flat above it (providing the occupant isn’t also the SIPP holder).

        “Job-related residential property” also isn’t taxable and may offer another way to invest in property via your SIPP. An example could be a caretaker’s flat.

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        Rules and regulations

        There are a lot of specific rules to be aware of if you want to purchase property – particularly buy-to-let – through a SIPP. HMRC are particularly strict with this sector, so here are a few main points you should be aware of:

        • As highlighted, direct investment in residential property (including buy-to-let) through a SIPP is possible but will be considered an unauthorised payment and result in a tax charge on yourself (this could be as high as 55% of the original purchase price) and the scheme administrator.
        • You’re free to invest in an open-ended residential property fund, but these themselves have strict rules, including the requirement for no more than 15% of the fund to be invested in one property, and additional restrictions regarding mortgages and leases.
        • REITs have plenty of rules as well, including the stipulation that at least 75% of the trust’s profit must come from property rental.
        • Commercial properties are acceptable for direct SIPP investment.
        • SIPP providers will often carry out due diligence before you buy or invest in any property to ensure it’s suitable. If you’re unsure, speak with them ahead of time.
        • You may be able to invest in residential property development, provided the property is sold before it becomes habitable and is placed on the open market.
        • Things can get tricky if any commercial property held in a SIPP is leased to a “connected party”, such as a family member, and an open market valuation will be required to determine fair rent.

        SIPP property purchase rules can be a minefield to the uninitiated, and there’s a lot more to think about besides the above. This is why it’s always best to seek expert advice from a specialist SIPP advisor.

        How an advisor can help you invest in buy-to-let property through a SIPP

        An advisor who specialises in SIPP property purchases will be able to confidently help you invest in buy-to-let through your pension fund, as they’ll know exactly how you can go about it without incurring a tax charge.

        They’ll know the property funds that would be best-suited to your needs, and if you’d prefer to invest directly, they can advise how to make commercial property investment work for you.

        They’ll get a detailed overview of your current pension status and retirement goals to make sure these kinds of purchases match your long-term plans, with all advisors we work with offering a free pensions review to get the ball rolling.

        Make an enquiry to find out more about how they could help.

        Investing in student properties

        Given that student properties are typically categorised as houses of multiple occupancy or a traditional buy-to-let, they fall under the “residential” umbrella and therefore wouldn’t be suitable for SIPP investment (unless you’re happy with the tax charge).

        Though again, there may be ways to get around this. You could, for example, opt to invest in a REIT that offers specific exposure to this type of asset class, or you may like to consider investing in halls of residence, which are classed as commercial properties and therefore allow for direct investment through a SIPP.

        There are again specific rules to be aware of, so make sure to check the HMRC regulations to ensure your investment is suitable.

        Would a buy-to-let portfolio be a better alternative?

        If you’d prefer to invest in buy-to-let on your own terms, then building your own portfolio of rental property could be a viable alternative to a SIPP. This way you could still generate an income in retirement, either through rental income or future sale of the property, without needing to opt for indirect investment.

        However, there are various tax implications to be aware of when going down this route, and you won’t benefit from the tax-free status of a SIPP. Some savers may therefore prefer to opt for both solutions to build a sustainable retirement fund, though it’s important to talk through your options with a specialist advisor so you know which one would be best for you.

        Get matched with a SIPP specialist

        If you’re keen to invest in property through your SIPP and are ready to consider your options, we can put you in touch with the expert to help. Our advisor-matching service will pair you with a SIPP specialist who can take you through the various investment options and tax implications, and it all starts with a free, no-obligation pension review to find out where you stand.

        Just call us on 0808 189 0463 or make an enquiry and we’ll do the rest.

        Ask A Quick Question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

        Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

        FCA Disclaimer

        *Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us as well as any of our own are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

        Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.