Why A Property SIPP Or SSAS Can Be Very Rewarding
Buying commercial property with pension savings is a popular choice due to the income generated and often low capital value volatility. Whilst both rental streams and capital values are subject to market fluctuations, direct investment in land and commercial property remains an attractive proposition for many SIPP and SSAS investors.
Your SIPP Or SSAS Can Directly Hold Commercial Property
Many business owners benefit from tax free rental income and capital growth through buying their trading premises with their SIPPs or SSAS. Not only does it provide security of tenure for the business, it's a tax efficient exercise for the SIPP or SSAS too.
In essence, your pension fund directly owns a commercial property. It can be the property from where your business trades. Or you can let it to a business with which you have no connection.
5 Potential Benefits Of Creating A Property SIPP Or SSAS
Here are the top 5 reasons for having a property SIPP or SSAS.
1. Capital Gains Tax Free Property Growth
Any growth in the property value is free from Capital Gains Tax. So if your property appreciates in value, no Capital Gains Tax is payable.
2. Tax Relief For Business Use
If your business is leasing the property from your SIPP or SSAS, the rent your business pays is an allowable business expense.
3. Tax Free Rental Income
If your SIPP or SSAS charges £1,000 in monthly rent to a business using your commercial premises, that £1,000 payment would not be subject to any tax because it's reinvested in your SIPP or SSAS.
4. No Inheritance Tax Liability
If you die, the property invested in your SIPP or SSAS should be fully exempt from Inheritance Tax. Inheritance Tax is normally payable on property held outside of a SIPP or SSAS.
5. Your SIPP Or SSAS Can Borrow
If you don't have enough money in your SIPP or SSAS to purchase the property, your SIPP or SSAS can borrow up to 50% of the value of your pension fund to complete the purchase.
Robin ran an optical practise from rented offices. Robin’s landlord told him he intended to sell the building. Robin had worked in the area for years and didn’t want to move as he’d built up a great reputation. He liked the idea of creating a property SIPP which would own commercial property, not least because it would secure the location of his business.
Having spoken to a specialist SIPP adviser and having carried out some property analysis in the area, Robin decided to buy the property jointly between his business and a new SIPP. Once the results of a detailed pension review had been considered, he created a SIPP by transferring a preserved company pension and two smaller personal pensions. When the money arrived in the new SIPP, it was held in cash, ready for the completion date of the property purchase. The purchase was completed as follows:
- Transfer of existing pensions to provide a cash fund with a new SIPP.
- The cash fund was increased by a pension contribution from Robin’s business, which attracted tax relief.
- A top-up loan from Robin’s bank, who were supportive of the transaction.
- The balance of the purchase price was provided by Robin’s business.
- On completion, ownership of the property was 70% by the SIPP and 30% by the business.
The purchase was only possible by utilising the money in Robin’s pensions. The pension analysis had revealed his funds hadn’t been performing well, so was Robin was happy to move the money to a SIPP.
He loved the idea of paying rent to his own pension, rather than his former landlord. He believes property prices are set to rise in the future, but he’s aware this is by no means certain. However, he’s looking forward to clearing the bank loan from the rental payments, so that once it’s finished, his pension fund will grow more quickly towards providing him with a comfortable retirement. Finally, as the new property owner, he’s secured his trading premises for as long as he wants the business to continue.
Discover How To Profit From A Property SIPP Or SSAS
Full information about creating a property SIPP or SSAS is available to SIPPclub Members only. It's set out in detail in our Members Area. To learn more about creating a property SIPP or SSAS, please select one of the buttons below.
As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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