Advice For Business

What are "SIPPs" and how are they used in commercial property purchases?

Self Invested Personal Pensions (SIPPs) are a popular method for small business owners to hold or purchase commercial property in a tax efficient way – not least because they promise compelling yields, in some cases exceeding 10 per cent.

However, buying or leasing property through a SIPP is a specialist area and can be a confusing process for those who are new to it. We can offer expert guidance on whether a SIPP is appropriate for you and, if yes, how to go about setting up a SIPP.

To help you decide whether a SIPP is financially beneficial for you and whether it could be the way forward for your property investment, we have set out a list of 15 key considerations. Please do get in touch with Karen Piontek if you need more information or would like to discuss the issues in more detail.

SIPPs – some key issues to consider

  1. Commercial property is a broad term and can include offices, shops, industrial units, hotels or farmland. It does 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.

How can we help?

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

Contact us

For more information about purchasing property through a SIPP, call  our Commercial Property team on 0161 684 6951 or make an enquiry.

For more information on pensions and SIPPS in general, click here.