Commercial Property Investment and Your Pension

Could You Unlock Your Pension’s Potential with Commercial Property Investment?

Did you know that you could invest your pension in ways other than stocks and shares? You can also use Self-Invested Personal Pensions (SIPP and SSAS) to purchase commercial property in the UK which can be a highly tax-efficient method of investing and saving. We recently hosted a webinar in conjunction with Dentons Pensions to discuss how this type of investment works, and the key benefits and risks of doing so which we summarise here.

Some examples of properties that are eligible for purchase via a SIPP or SSAS include:

• Offices
• Retail Premises (e.g. shops)
• Industrial Units
• Agricultural Land
• Hotels
• Vet Surgeries
• Restaurants

Other types of property may also be a viable option. However, you would need to consult your financial adviser and/or your SIPP or SSAS provider, to ascertain whether they are eligible for purchase or not.

There are many advantages to using a pension scheme to purchase commercial property. Although, the prime purpose of any pension scheme is to provide for your future financial needs in retirement and it is important that any investment of the scheme should be made with these long-term objectives in mind.

One key advantage when considering the purchase of commercial property within your SIPP or SSAS are the tax benefits. Tax relief on contributions to the pension can be used to purchase the property, and any gain on the property value is also free from capital gains tax.

An example of this would be non-permanent fixtures and fittings. These must be excluded from the property purchase, otherwise they can give rise to a tax charge.

Rental income is also a great advantage to this type of investment as open market rent is paid to the pension scheme, and all rent from tenants is received gross and free from income tax.

Tenants can also treat rent as a business expense for tax purposes, thus reducing their income and corporation tax liability.

Once the mortgage is paid off, ongoing rent and contributions can continue to build your retirement fund which can also then be used for other investments and/or to pay benefits at retirement.

Another important benefit to note with commercial property purchased in this way, is that it sits outside of the member’s estate for Inheritance Tax (IHT) purposes. This means that if the member sadly passes away before retirement, then the property is treated in the same way as any other investments held within the pension scheme, and therefore not add to any IHT liability. It may also be possible to transfer ownership to a beneficiary as an in-specie benefit, therefore avoiding the need to sell the property.

Despite the numerous advantages, there are a variety of HMRC rules to be followed. Tax penalties can be levied on certain types of premises if the rules of acceptable property are ignored, so satisfactory due diligence is of paramount importance.

It is also important to consider the costs and funding of commercial property investment. There are varying ways in which the commercial property purchase may be funded, which could include:

• Outright purchase with cash held in the SIPP or SSAS.
• Part/joint purchase with cash held in the SIPP or SSAS.
• Borrowing from the SIPP or SSAS and/or via another party.

Other important areas of costs that will formulate part of any such affordability in the commercial property purchase within your SIPP or SSAS would be:

• Solicitor fees
• Survey fees
• Lender fees associated with any borrowing
• Stamp Duty Land Tax (if applicable) and any Land Registry fees
• Energy Performance Certificates (where applicable)
• SIPP/SSAS provider fees and any related financial advice fees
• Premises Insurance

As with all financial plans, it is important to take your own circumstances and goals for the future into consideration. To discuss whether commercial property investment may be an appropriate and beneficial solution for you, please do not hesitate to get in touch with an Integrity365 Independent Financial Adviser on 0117 450 1300.

Click here to watch our full webinar in conjunction with Dentons Pensions on Commercial Property and Your Pension.