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Simplifying SIPP Commercial Property Purchases

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With the promise of compelling yields, in some cases exceeding 10 per cent, investing in commercial property via a Self Invested Personal Pension (SIPP) is proving popular for small business owners as a tax efficient way to hold or purchase commercial property.

However, buying or leasing property through a SIPP can be a confusing process, requiring expert guidance. To assist in making the right decisions, we’ve compiled 15 key considerations that could help you to reap the benefits of this often financially beneficial option.

Key Considerations

1. Commercial property is a broad term and can include offices, shops, industrial units, hotels or farm land – but not residential properties, buy-to-let properties or holiday homes.

2. All transactions must satisfy HM Revenue & Customs and other regulatory requirements.

3. You can transfer different pension pots into the SIPP.

4. The SIPP can take a mortgage of up to 50 per cent of the net value of your pension fund.

5. The mortgage can be paid off through commercial rental. Once cleared, any income is then reinvested in the SIPP to provide tax-efficient growth free from tax.

6. Any growth in the property value is free from Capital Gains Tax (CGT). If the property increases in value then no CGT is payable when the pension disposes of it.

7. If your business is leasing the property from your SIPP, the rent your business pays is an allowable business expense.

8. Tax free rental income – if your SIPP charges £1,000 per month in rent to a business using the commercial premises, that £1,000 payment would not be subject to any tax as it is re-invested in the SIPP therefore increasing its value.

9. No Inheritance Tax Liability (IHT) – in the event of your death, the property invested in your SIPP should normally be fully exempt from IHT.

10. You must factor in legal and surveyor costs as well as potential Stamp Duty Land Tax and VAT charges.

11. The SIPP provider will need to be satisfied that the rental income from the property is sufficient to meet the repayment costs.

12. The property will need to have a tenant in place on or before completion. If rent is not collected, in the event of the lease being to a ‘connected party’, an unauthorised benefit could arise, potentially resulting in personal tax charges.

13. A commercial lease will need to be in place either before or on completion with a market value rental figure.

14. If VAT is payable in addition to the purchase price, then sufficient funds must be contained in the SIPP.

15. The SIPP provider will usually require full searches including an environmental report. The property owner must be fully aware of potential environmental liabilities and confident that the property is suitable for SIPP purposes.

Our Commercial Property team works in close partnership with Pearson’s Financial Services team and can easily give you access to professional and strategic advice to help successfully navigate this often complex transaction under one roof.

For more information about purchasing property through a SIPP, call Karen Piontek in our Commercial Property team on 0161 684 6951 or email karen.piontek@pearsonlegal.co.uk.

 

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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