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Investing in property with your SIPP

Many pension funds have viewed commercial property as an important investment sector. Examples of properties that are invested in a SIPP include listed buildings, shops, offices and warehouses. A SIPP gives you the opportunity to purchase commercial property in a highly tax efficient way:

 

  1. Contributions to the pension plans may attract full tax relief at the highest rate. If the fund buys the property, you are effectively receiving income tax relief on the purchase cost of the building

  2. Within limits, the pension fund can borrow to help fund the purchase

  3. The pension fund can lease the property at a commercial rent: the fund receives income tax relief on the rents paid the pension fund is not liable to tax on rents received, so any interest paid on borrowings to buy the property is paid out of gross income

  4. Borrowings might be repaid out of continuing contributions to the fund.

 

To be a valid SIPP investment, property must be:

 

  1. Appropriate commercial property (direct investment in residential property is not allowed)

  2. Let at a commercial rent.

 

Borrowing using the SIPP to buy a property:

 

If your pension scheme allows investment in commercial property, up to 75% of the value of the property can currently be borrowed for this purpose. From A-Day borrowing will be limited to a maximum of 50% of the plan value but may be restricted further, based on commercial lending considerations. The impact of this change is that:

 

  1. If your plan currently invests in property and has borrowing of more than 50% of the value of your plan, you can retain this provided that the terms of the borrowing are not altered in any way.

  2. If, after A-Day, your plan 

  • Invests in a property for the first time, or

  • Takes out further borrowing, or

  • Changes the terms of existing borrowing, borrowing will be limited to a maximum of 50% of the plan value, subject to commercial lending considerations.

Please note that until recently there was an expectation that the new rules would, for the first time, allow pension schemes to invest in residential property. The Government has now deemed direct investment in residential property to be a ‘prohibited’ investment.



» Learn About SIPPs

 

» Register your interest

 

» Contact Us - find out who to contact if you have a query.