Investing your Pension (SIPP) in a Commercial Property

It can be no coincidence that large numbers of professional business owners choose to invest their private pensions in commercial property, very often in the premises from which they carry out their business. The funds come from their privately-held SIPP (Self-invested Personal Pension) or SASS (Small Self-Administered Scheme), with the main attractions for the investor being their tax efficiency and reduction of risk – the business itself has a landlord it can trust, and the landlord has a tenant who will pay regular rent.

Things are not quite so straight forward where there is no direct link between the landlord and tenant, as would usually be the case when the property is purchased principally for investment purposes by the SIPP. A feature of many UK high streets is the rows of empty properties and charity shops on short-term lets, while business parks and industrial estates vie with each other to attract new tenants. So although investing in these commercial properties might have long-term advantages, finding suitable tenants can be more problematic.

Pros of buying a commercial property with a SIPP or SASS:

  • Property is not subject to Capital Gains Tax when sold
  • Rent is not subject to income tax
  • Capital can be freed up for use by the business
  • Property is protected from creditors in case of bankruptcy
  • Property is not liable to Inheritance Tax
  • Property can be transferred as a `death benefit’ after the death of the SIPP/SASS holder
  • Loan is not subject to corporate or individual liability
  • SIPP/SASS is able to borrow up to 50% of its value to invest
  • Property can be sold at any time without restrictions
  • Property can be bought by group of SIPP investors acting together

Cons of buying a commercial property with a SIPP or SASS:

  • Interest on SIPP loan does not qualify for tax relief
  • Property cannot be used to support additional loans to the business
  • Loans for a SIPP/SASS are often short term, making them expensive to take on
  • Funds held within the property may take a long time to be released in case of a sale
  • Property may have to be sold at an inconvenient time to meet other liabilities
  • Full market rent must be paid by the tenant, regardless of whether it is your own business
  • Rent revaluations must be carried out regularly, incurring additional costs
  • Maintenance and other costs must be met, regardless of there being a tenant in place
  • The property and the business will be closely linked, leading to greater risk should the business fail

In spite of the difficulties currently faced by the commercial property market, it is likely that in the longer term this sector, like all property types, will return good rental values as well as being an appreciating asset. If investors are prepared to play a longer game, as most would be if they are buying a property in order to occupy it themselves, then buying business premises with a SIPP/SASS could bring above average rewards. Your financial adviser can guide you as to whether this is the right course of action for your circumstances.

As an independent local business Bretherton Law have been serving people and businesses in Hertfordshire for over 50 years. Whether you are buying or selling business premises, about to commit to a new lease, or in the middle of a rent review our experienced Commercial Property team will give you honest, professional advice and ensure your affairs are handled swiftly and smoothly. Contact Osman Dervish on 01727 869293, or use the contact form below. 

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