One of the principal attractions of Sipps is that they allow you
to invest directly in commercial property. It is also possible to
invest in certain types of residential property, but only if you do
so via a collective investment called a ‘genuinely diverse
commercial vehicle’ or certain collective investment property
funds.
Commercial property purchase
There are many advantages in a pension scheme owning commercial
property or land, including:
- no capital gains tax liability when the property is sold;
- normally there will be no inheritance tax liability as the
property is an asset of the scheme (with the exception of where
alternatively secured pension is being taken, in which case
inheritance tax may apply);
- rent paid by the tenant is tax deductible as a business
expense, and
- rental income can be paid gross into the Sipp fund.
However, you should remember that property is an illiquid asset
and will require ongoing maintenance, plus reliable tenants to
generate good returns.
What type of direct property can a Sipp purchase?
Commercial property, including:
- hotels
- student accommodation
- care homes
- shops
- offices
Can a Sipp borrow?
A Sipp can borrow on commercial terms a maximum of 50 per cent
of the current value of the scheme, less any outstanding loans. All
of the scheme assets, plus any scheme borrowing, can be used to
purchase an asset.
For instance, if your Sipp is worth £400,000 (net of loans), you
could borrow up to £200,000, making it possible to purchase a
property costing £600,000.