Self-Invested Personal Pensions (SIPPs) continue to grow in popularity as individuals look for flexible and tax‑efficient ways to plan for retirement. One of the key attractions is the ability to hold commercial property within a SIPP, providing opportunities to generate rental income and capital growth with valuable tax reliefs.
What is a SIPP?
A SIPP is an investment‑regulated personal pension that gives members access to an extensive range of investment options. SIPPs are commonly offered by FCA‑regulated pension providers, investment platforms and insurance companies.
The individual investing in the pension is known as the member. SIPPs can be structured in two ways:
- Co‑trustee SIPP – the member is appointed as a co‑trustee alongside the professional trustee.
- Sole‑trustee SIPP – only the professional trustee (usually the provider) is named on the title.
Purchasing a Commercial Property through a SIPP
SIPPs can acquire a wide range of qualifying commercial properties, including restaurants, offices, industrial units, warehouses and retail premises. Residential property, such as houses or flats, cannot generally be held within a SIPP.
Before a purchase can be completed, full due diligence must be conducted. This typically involves ordering searches, reviewing the title and raising necessary enquiries with the seller.
As SIPPs must operate on an arm’s‑length basis, the property must be acquired at its market value. In terms of funding, SIPPs can borrow up to 50% of the scheme’s net asset value at the time the loan is taken, which can help fund property purchases.
How is the property held?
The legal owner of the commercial property will be the trustee(s) of the SIPP. In a sole‑trustee SIPP, the property is registered in the name of the professional trustee. In a co‑trustee SIPP, the property is registered in the joint names of the member and the professional trustee. Where members are co‑trustees, a restriction is added to the title to ensure the property cannot be sold without both parties’ consent. The property is then held on trust for the benefit of the pension scheme.
Occupying the Property for your Business
If the member’s business intends to occupy the premises, a formal lease must be put in place. This protects the SIPP and ensures compliance with HMRC rules. The lease must:
- Set rent at full market value
- Specify who is responsible for maintenance, insurance and repairs
- Document all key terms clearly to avoid any tax issues
The rent is paid to the SIPP, providing a tax‑efficient source of income.
What happens when the property is sold?
Following a sale, the proceeds remain within the SIPP and are held on trust in accordance with the scheme rules. The member cannot personally access the funds unless they are taking pension benefits, either on retirement or death.
What are the advantages?
Holding commercial property in a SIPP offers several attractive tax benefits:
- Rental income received within the SIPP is generally free from income tax.
- Capital gains on the sale of the property are normally exempt from Capital Gains Tax.
- Contributions made into the SIPP may also attract tax relief.
However, every transaction is different. It is essential to obtain appropriate legal and tax advice before proceeding with a SIPP property purchase.
How can a Solicitor help?
A Solicitor will guide you through the legal process, including conducting searches and reviewing title documentation, handling due diligence and dealing with the seller’s solicitor, preparing or reviewing the lease (where required) and completing registration formalities at HM Land Registry.
If you are considering purchasing a commercial property through a SIPP, our Commercial Property team can assist you. Please call our team on 0191 384 2441 or email Grace Ridsdale at grace.ridsdale@swinburnemaddison.co.uk.
