Self Invested Personal Pensions (SIPP)

Considering buying commercial property using a Self-Invested Personal Pension (SIPP)?

Considering buying commercial property using a Self-Invested Personal Pension (SIPP)?

With standard personal pension schemes your investments are managed for you within the pooled fund you have chosen. A self-invested personal pension (SIPP) is a type of personal pension that offers much wider investment powers then are generally available for standard personal pensions. The wider investment powers of a SIPP mean that you can invest in a range of assets including commercial property and land and that you can choose your own. For this reason, SIPPs are a common purchase vehicle for commercial property.

What are the advantages of using a pension scheme?

There are lots of benefits to investing in property via a pension scheme. For example:

1. Contributions made to pension schemes attract tax relief at the individual’s or company’s highest rate.

2. Rental income received by a pension scheme is exempt from income tax.

3. Capital appreciation of a property held by a pension scheme attracts no UK capital gains tax.

4. On retirement, 25% of the pension fund can be paid as a tax free lump sum.

5. On death before retirement, the whole pension fund may be paid as a tax free lump sum (with no inheritance tax).

For more information on Self-Invested Personal Pensions...

Please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 for a free discussion or email

However, the tax rules for pension schemes mean that quite severe tax charges are imposed in relation to investments in certain types of property, including residential property, beach huts and shops with flats above (unless the flat is sold on a long lease and has a separate entrance, or is let to the shopkeeper). Therefore, you should be careful in choosing your investments – stick with commercial property, hotels and student accommodation, but always take professional advice before investing in order to ensure the tax benefits of the SIPP will not be lost.

Can a SIPP borrow money to purchase a property?

Yes, a SIPP can borrow money to purchase investments. A SIPP can, for example, raise a mortgage towards the purchase of a property. The property will then usually be rented out and the rental income will service the mortgage repayments and build up funds within the scheme, while the value of the property hopefully increases.

A pension scheme is usually permitted to borrow up to half of its value to purchase a property and the mortgage will work in the usual way, with the lender taking a charge over the property and the borrowing being repaid when the property is sold.

Can I rent the property owned by the SIPP to my own company?

Yes, you can. The property will be owned by the trustees of the SIPP so a formal lease would need to be entered into recording the terms of the lease to your own trading company or business. And, because your company will be connected with the SIPP, you would have to have the level of rent independently assessed by a valuer.

The lease will usually be a full repairing and insuring lease which means that your company, as tenant, would be responsible for keeping the property in good repair and condition and paying the full amount of the buildings insurance for the property .

The rules regarding commercial property for SIPPs are incredibly complex and there are many pitfalls that someone without experience can be caught by. Therefore, in order to best protect your pension fund, speak to a tax adviser and a solicitor early in the process and make sure that you understand how the SIPP will work alongside your retirement plan.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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