What is a SIPP?
A Self-Invested Personal Pension (SIPP) is a type of pension scheme that offers individuals greater control over how their pension savings are invested.
Unlike traditional pension plans, where the provider decides where your funds are placed, a SIPP allows you to select your own investments.
SIPPs are usually provided by insurance companies or specialist SIPP operators and are regulated by the Financial Conduct Authority.
There are also tax benefits: income received from investments within a registered pension scheme is generally exempt from income tax, and any capital gains on the disposal of property held in a SIPP are also tax-free.
However, withdrawals from the SIPP are subject to income tax, so it is important to seek tax advice before establishing a SIPP or purchasing property through one.
Investing in Commercial Property
One of the most popular SIPP investment choices is commercial property. Such properties can generate a steady rental income that is paid directly into the pension fund, and they can potentially be sold later at a profit.
Your initial investment might take several forms, including:
- Purchasing a property outright
- Transferring a property you already own into your SIPP
- Pooling funds with other investors to purchase a property collectively
Typical examples of commercial property suitable for a SIPP include office buildings, warehouses, public houses and retail units. (Residential property is generally not permitted.)
Once the property is acquired by the SIPP, it can be leased to a tenant, with rental income flowing back into the pension fund.
How the Process Works
If a SIPP is purchasing property from an unrelated third party, the SIPP trustee and the member usually instruct the same solicitor to act on the purchase, provided there is no conflict of interest. If you already own the property and plan to transfer it into the SIPP, separate legal representation may be required.
A SIPP can borrow from a commercial lender to fund the purchase, but borrowing is capped at 50% of the SIPP’s net asset value at the time of the loan. Once the transaction completes, the legal title to the property is generally held jointly by the SIPP provider and the member, as trustees for the SIPP scheme.
The Pros and Cons
Advantages
- Rental income from SIPP-held property is exempt from income tax
- No capital gains tax on the sale of the property
- The property does not currently form part of your estate for inheritance tax purposes, though the government is planning to change this from 6 April 2027
Disadvantages
- The property market can fluctuate, affecting both rental income and resale value
- Selling property can be more difficult and time-consuming than selling other types of investments
- Strict HMRC rules apply, and professional tax and financial advice is essential
Contact Our Commercial Property Team
Our Commercial Property team are well-experienced in dealing with purchases of investment properties for SIPPs as well as assisting with the lease of the property to a tenant.
Once the SIPP is up and running, we are happy to assist with the purchase or leasing of investment commercial property by a SIPP.
If you would like assistance in the sale or purchase of commercial property through a SIPP, please get in touch with our team of experienced Commercial Property solicitors today on:
0161 941 4000
Final Thoughts
Investing in commercial property via a SIPP can be an attractive way to diversify your retirement portfolio and take greater control of your pension investments. However, it is a complex area, and it’s vital to seek specialist advice to ensure this approach aligns with your financial goals and tax position.
For tailored advice, speak to one of our commercial property specialists, who can guide you through the legal and practical steps involved in SIPP property investment.
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Ellie Sharp
Solicitor
Ellie obtained a 1st class Law degree from the University of Law in 2020, and then completed her Legal Practice Course with additional Master of Laws in 2021 at the same university, obtaining a distinction in both. Ellie has experience in a variety of commercial property matters, such as new leases and renewal leases, sales, purchases and refinance matters for a variety of individual, company and charity clients.
About Ellie Sharp