SIPP commercial property investment

SIPP Commercial Property Investment & Pensions Guide

Were you aware that it is now possible to buy commercial property assets through your personal pension fund? Well you can, using a special financial vehicle called a SIPP or self-invested personal pension. With the changes to the UK’s pension rules many investors now choose commercial property as one of their preferred SIPP investment vehicles because of its potential for capital growth and regular income.

A SIPP, which stands for self-invested personal pension is a specialised personal pension scheme that gives you greater freedom over the types of investment you can buy to build your pension fund.

Benefits of Investing in Commercial Property through a SIPP

Investing in commercial property through a SIPP offers a number of financial benefits including:

  • Tax relief

    You can benefit from tax relief on contributions paid into your SIPP.

  • Capital gains tax

    Get exemption from capital gains tax when the commercial property within your SIPP is sold.

  • Income tax

    Get exemption from income tax on any rent received.

  • Cash

    Benefit from increased cash flow if the SIPP held property is acquired.

Take Control of Your Pension Fund with a SIPP

SIPPs are sometimes referred to as DIY pension wrappers because, unlike a traditional private pension fund where investment options are limited to those selected by the pension scheme provider, you are in complete control and can select from a wide range of investment assets including, amongst others, commercial property investments.

The History of SIPPs in the UK

SIPPs were introduced by the UK Government in 1989 to give investors greater control over where their pension money was invested and they have been regulated by the Financial Conduct Authority (FCA) since 2007.

Unlike conventional personal pensions, SIPPs allow you to invest in a wide range of assets including shares, bonds, commodities, hedge funds, gilts, and in some instances, commercial property.

SIPP’s are now a popular form of personal pension for many and the number of providers offering SIPPs to the market has increased significantly in the last few years.

Is a Self-Invested Personal Pension for You?

Before you even consider introducing commercial property into your personal pension fund, you firstly need to decide whether or not a self-invested personal pension would suit your personal financial circumstances, and your financial advisor should be able to help here.

We would strongly recommend that before proceeding further with any SIPP and commercial property related investments you seek the expert advice of an independent financial advisor (IFA) with suitable pension’s experience.

What Types of SIPP are Available?

There are now a wide range of SIPPs available on the market, for example, there are cheaper online versions which will allow you to invest as little as £100 a month, while at the top end of the market you will find far more comprehensive SIPPS that are more suited to higher net worth individuals.

These financial products offer exposure to assets traded in any recognised stock exchange worldwide – with all the additional risks that come with such an approach.

If you are looking for something in between – and more and more people are finding it pays to tread this middle path – there are a number of so-called “hybrid” SIPPS which are self-invested personal pensions set up by insurance companies, for which providers may require some investment in their own in-house funds, or offer reduced charges on them.

How Much will a SIPP Cost?

At the budget end of the market it is currently possible to set up an online SIPP without paying any initial set-up or annual administration charges… initial fund charges are also usually discounted.

Therefore the only fees you will need to cover will be online or phone dealing fees if you want to hold individual shares or other traded assets.

As you would expect, charges for full SIPPs are much greater – around £300-£500 and more, with additional annual charges and extra costs including special investments such as commercial property.

What about Personal Tax?

As for personal tax, the same rules apply as to other pensions.

For the latest position on maximum contributions and annual allowances for UK SIPPs you should refer to the HMRC website… HMRC →

It may also be worthwhile discussing with your financial advisor the possibility of transferring your existing pension assets into your single SIPP fund.

Before you do this however, have your financial advisor carefully explain in detail the advantages and disadvantages before you do decide to go ahead.

It is obviously far easier to keep an eye on all your investments in a single SIPP, but there are penalties and exit fees to take into account – and you should never leave a pension scheme if by doing so you miss out on extra contributions from your employer.

What Type of Property is Allowed in a SIPP?

Only commercial property investments can be included in your SIPP… residential property is currently not allowed.

Having said that however, the different types of commercial property that can currently be included covers a vast range of options.

One of the most common forms of property assets to be included in a SIPP is for business owners to hold their own commercial property within their pension fund, but there are many other SIPP possibilities, and these can include different types of commercial property such as offices, warehouses, factories, hotels, petrol stations and the like.

How to Create a Self-Invested Personal Pension

At its most DIY level you can create a SIPP yourself; however we would always recommend that you seek the expert advice of an independent financial advisor (IFA) with suitable pension’s experience.

If you choose to open a SIPP account yourself, first you need to apply for an Investment account and this can be done online.

Once you have completed the application process, as long as the information can be verified, your account should be up and running virtually straight away, and this will normally be confirmed within 72 hours.

The Risks to your Pension Fund

As with all such investments however, you should make yourself aware of the risks associated with self-invested personal pension schemes.

The value of your investments and any income generated from them can fall as well as rise, in which case you would get back less than you invested.

The old adage wisely states that past performance is no guarantee of future performance.

Also, take into consideration the fact that tax treatment depends on your individual circumstances and may be subject to change in the future.

Bearing all this in mind – and it is a lot to take in at one sitting – if you are still unsure about whether or not to proceed with a SIPP incorporating commercial property investments you might be swayed by the fact that the popularity of these self-invested personal pensions is growing year on year as more and more people look for a wider choice for their pensions savings.

Specialist Commercial Property Investment & Finance Solutions

As a leading independent property investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.

If you are currently reviewing your pension arrangements and looking at SIPP commercial property investment opportunities please contact us today to discuss how Investment Property Partners can help you.

Further reading…

More information about SIPP commercial property investments… here →

For more from the Financial Conduct Authority … here →