Buying a commercial property with a SIPP
A SIPP is a Self Invested Personal Pension and is used by an increasing number of people to plan for retirement income.
It is a flexible scheme and can be used to buy commercial property using pension funds and is extremely tax efficient.
However, from the offset it is worth emphasising that a SIPP cannot be used to buy a residential property, even as a buy-to-let or holiday home.
If there is not enough money in pension funds to buy a property through a SIPP outright, or if the SIPP investor does not want to invest the whole of his or her pension funds in commercial property, a SIPP can borrow the money.
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It can borrow up to 50 per cent of the value of the property.
If the property is to be used for the SIPP investor's business, then the lender will need to be satisfied that the business has a stable trading history and sufficient cashflow to meet rental payments.
If it is let to a third party, banks prefer to see an existing tenant or at least a property that is easily let-able.
Buying a commercial property with a SIPP is not a way for the SIPP investor's business to find cheap property.
Everything needs to be done on a commercial basis, which means that the SIPP provider will require the usual searches and enquiries to be made including and in particular an Environmental Search.
An Energy Performance Certificate and an Asbestos Survey must also be produced.
In fact, the requirements are the same as if a commercial property was being purchased in any other way.
If a new lease is to be put in place on completion it must be at a market rent and on usual commercial terms.
Depending on the value of the property there may be Stamp Duty Land Tax to pay and this may also be payable by the SIPP investor's business if a lease is granted to it.
While SIPPs grab the headlines, another type of sel- invested pension can also be used to buy commercial property.
A Small Self Administered Scheme (SSAS) is another option.
While a SIPP is an individual arrangement a SSAS is a group scheme, generally with multiple members.
There are benefits to using a SSAS as opposed to a SIPP.
Where there are a number of SIPPs coming together to buy a property, the overall costs may work out cheaper with a SSAS.
In addition, the paperwork can be less onerous with a SSAS.
While using a SIPP, or SSAS, to buy commercial property is a worthwhile option, there are pitfalls for the unwary so it is vital to seek professional advice before taking action.