A short guide to buying commercial property in your SIPP

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This is a guest post about buying a commercial property with a SIPP written by James Randall of I.P.M. SIPP Administration Limited.

This blog helps answer an all too common question I get around “can I invest my pension in property?”. The short answer is yes, you can invest your pension in property.

Buying a commercial property with a SIPP is a popular type of investment, particularly for business owners who own their premises.

This SIPP purchase property guide ummarises the advantages and disadvantages of purchasing a commercial property with a SIPP.

What’s a SIPP?

A SIPP is a form of personal pension that allows you to hold a wide range of assets. A SIPP comes with generous tax rules, which applies to any asset held within it (commercial property included).

What are the benefits of purchasing a property in a SIPP?

One of the benefits of using a SIPP to purchase a property is for the tax benefits applied to contributions. It works like this:

  1. If you’re an individual, you’ll receive pension tax relief at your marginal rate. This means that if you’re a higher rate taxpayer, the Government will credit your pension by £20 for every £80 you put in and reduce your tax bill by a further £20. Effectively, it only costs you £60 to receive £100 of benefit.
  2. If you’re an employer, contributions to a pension will be an allowable expense. This means that money contributed to a pension will reduce your corporation tax liability. You won’t pay national insurance on the contribution either.

What are the benefits of holding commercial property in a SIPP?

The SIPP is a tax-efficient wrapper. This can lend itself well where a pension is holding an asset such as a commercial property. The two main tax benefits are:

  1. Tax-free growth. This means that when you come to sell the property, there’s no capital gains tax to pay (rather than the 18% or 28% tax paid if not held in a pension).
  2. Tax-free income. This means that any rental income is tax-free (rather than the 20% or 40% tax that you pay outside of a pension). So, if your business owns the premises, the business could pay rent to the pension, which reduces the businesses corporation tax liability and no tax would be paid on the income by the pension.

What about the drawbacks?

Although holding commercial property in your SIPP can be very tax-efficient, there are some notable drawbacks. The main drawbacks are around liquidity, diversification and restrictions.

  1. Liquidity. Selling a property doesn’t happen overnight. So if you need to get your hands on some money, and only hold property in your pension, it’s going to take a while.
  2. Diversification. If you only hold property, you’ve got all your eggs in one basket. For all but the largest pension funds, a property will usually be the majority if not all of the pension funds’ assets. This means that when prices fall, you’ve got nothing to offset it.
  3. Restrictions. While a SIPP provides you with a large element of control it must be remembered that it is the SIPP that owns the property. This is to ensure that the HMRC guidelines are followed so that you aren’t left with a nasty tax bill. Want to change the structure of the building? You’ll need sign off from your SIPP provider first.

The bottom line

Buying a commercial property through a SIPP is not going to be for everyone. As always, it will depend on their circumstances and needs. This is where financial advice is important. Before making any decisions on your pension we strongly recommend you speak with your financial advisor.

If you want to know more about the benefits, pitfalls and practicalities of buying a commercial property through your SIPP, drop me a line.

All the best,

commercial property sipp, Frazer James Financial Advisers

James Mackay, Independent Financial Adviser in Bristol

P.s – you might be interested in my article Property vs Pension

Property vs Pension – What’s the Best?



Financial Advisor Bristol and Pension Advisor Clifton

Frazer James Financial Advisers is an Independent Financial Advisor based in Clifton, Bristol.

About us: Frazer James Financial Advisers is a financial advisor, based in Clifton, Bristol. As an independent financial adviser, we’re able to provide independent and unbiased financial advice. We provide independent financial advice, pension advice, investment advice, inheritance tax planning and insurance advice.

If you would like to speak to a Financial Advisor, we offer an Initial Financial Consultation without cost or commitment. Meetings are held either at our offices, by video or by telephone. Our telephone number is 0117 990 2602.

Frazer James Financial Advisers is located at Square Works, 17 – 18 Berkeley Square, Bristol, BS8 1HB.

This article provides information about investing, but not personal advice. If you’re not sure which investments are right for you, please request advice.

Remember that investments can go up and down in value, you may get back less than you put in.

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