Commercial Property SIPPs

When building up a nest egg, some people prefer to invest in tangible assets, like property, over stock market assets that can seem nebulous and mysterious. Others want to invest in both, to spread their risk across different categories.

A self-invested personal pension (SIPP) gives you the freedom to invest in many different assets, including buying a commercial property. That can be useful for many people, particularly business owners who need their own premises. We’ll explain more in this guide.

Can you use a SIPP to buy a commercial property?

Yes, the ability to invest in commercial property is one of the advantages of this type of pension. However, not every SIPP is suitable for buying commercial property, so you’ll need to choose your SIPP provider carefully.

There are three ways to use a SIPP to buy commercial property:

Directly buying a property

You can buy a commercial property (such as a premises for your own business) outright if you have the funds in your SIPP to do so. Or, you can borrow up to 50% of the net value of your SIPP from a bank or building society as a commercial mortgage. You might pool your funds with other SIPP holders to collectively buy a commercial property or properties.

Transferring in a property

If you already own a property, you can transfer ownership into your SIPP. You will no longer own the company personally, so the rental income and increase in value will go into your SIPP.

Investing in a property fund

You don’t have to own or buy a property to benefit from growth in the property market. You can also invest in a commercial property fund, which works by pooling money from multiple investors to buy and sell properties under the instruction of an investment manager.

HMRC commercial property rules for SIPPs

HM Revenue and Customs (HMRC) imposes no restrictions on what type of commercial property can be purchased through your SIPP. Its regulations allow you to own a wide variety of commercial property types, including shops, offices, warehouses, pubs, garages, hotels, and land that is to be developed for commercial purposes.

The property can be abroad, although buying an overseas property can involve additional costs and exposes you to currency risk. The tax benefits of buying through a SIPP may not all apply in the country you buy a property.

Residential properties cannot be owned through a SIPP. HMRC considers them to be taxable investments, so would apply a hefty tax charge if you were found to own one. Certain commercial properties with a residential element (such as a care home) sit outside these rules.

Advantages and disadvantages

As with any investment, buying a commercial property with a SIPP has upsides and downsides.

How an advisor can help with a commercial property SIPP

The rules around commercial properties and SIPPs are complex and it’s wise to seek expert financial advice before making an investment.

A specialist SIPP advisor can:

• Recommend the best SIPP provider that permits investment in commercial property, which include Barnett Waddingham, Dentons, and Standard Life
• Discuss the various ways that owning a property this way will impact you, your business, and your pension
• Ensure that you abide by HMRC rules, and therefore avoid expensive tax charges
• Assess the level of risk you are exposed to through a property investment and whether that is within your personal tolerance
• Suggest other investments that might be also suitable for you

If you get in touch, we’ll arrange for a pensions advisor we work with, who has experience with all aspects of SIPPs and commercial property, to contact you straight away.

Can a SIPP take out a commercial mortgage?

Yes. Many mainstream lenders offer mortgages that allow you to buy a commercial property through a SIPP. Rates can vary considerably based on the property you’re buying, the performance of your business, and your personal credit history. Working with an experienced advisor will help you to get the best deal.

Get matched with an independent pension advisor

When making any decisions about your pension, you need to be somewhat cautious of the complex HMRC rules around taxes, allowances, etc. It’s easy, as an unqualified person, to make mistakes that result in large charges.

So, we’d always recommend you speak to a pension advisor first. In the case of buying commercial property with a SIPP, it won’t just help you to avoid tax charges but could also open up opportunities to arrange your finances more tax-efficiently. If you’d like to speak to an advisor who specialises in SIPPs, give us a call on 0808 189 0463 or fill out this short form.