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4 Pros and Cons of Buying a Commercial Property in a SIPP

Updated: May 2, 2023

Before we get into the pros and cons, let's start with what a SIPP is:

  • A SIPP stands for a Self-Invested Personal Pension, it has all the tax advantages of a pension but also allows access to a wider choice of investments.

  • A SIPP can buy and invest in UK commercial property directly. This includes any freehold or leasehold commercial business such as; offices, factories, pubs or shops.

  • A SIPP cannot purchase a buy-to-let residential property.

  • Your SIPP can take out a mortgage to buy a commercial property but can only borrow up to 50% of the SIPP's value from a lender.

  • It is possible for a group of people to combine the funds held in their SIPPs to buy properties jointly.

  • Once a property is purchased, the company renting the commercial property pays rental income to the SIPP at market rate.

What are the key benefits of buying a commercial property through a SIPP:


Tax Relief

The property within the SIPP does not pay Capital Gains Tax on sale.



Tax Relief

The rental income received is free of income tax.



Expense

If you own the company that's paying the rent, it is treated as a tax-deductible business expense.


Retirement Pot

The rent received can be re-invested and build up your retirement pot.



What are some considerations of buying a commercial property through a SIPP:


Eggs in one basket

If the property is the only asset within the SIPP, the SIPP lacks diversification and at risk if not performing well.


Inaccessible

You may not be able to sell the property at a time when you need to access the funds.


Fees

Purchasing a commercial property within a SIPP includes various charges such as legal fees, surveyor fees and SIPP administration fees.


Maintenance

You're responsible for the maintenance of the property and any improvements are to be pre-approved by the SIPP trustees.



If you're considering purchasing a property through a SIPP, we offer a free consultation on what is required and how the process works.



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