If you’re looking for long-term returns in a self-invested personal pension (SIPP), commercial property is a popular option. Boasting compelling yields and plenty of tax advantages, this type of investment is an attractive option for those looking to benefit from significant financial returns.
You can hold any physical UK commercial property as an investment directly within a self-invested personal pension. This includes offices, shops, pubs and hotels.
Alternatively, you may also decide to invest in your own business premises. In doing so, you may be able to use your pension savings as a source of business funding. Whether you are planning on doing this or using it as an investment to be rented to a third party, you will benefit from several tax advantages.
If you decide to invest in commercial property through your SIPP, you will experience tax relief on the contributions you have paid into the pension and there will be no tax on rental income or property value growth.
As well as this, selling a property held within a SIPP does not generate capital gains tax as the growth of the property’s value belongs to the pension, rather than you or the business.
The value of the pension can also be passed onto your children outside of your estate, reducing inheritance tax. This makes holding a commercial property within your pension an attractive way of leaving money to your family after your death.
How can I purchase commercial property using a SIPP?
You can purchase the property using money in the pension, or, if you need to borrow to fund the purchase of a commercial property, the SIPP can get a commercial mortgage.
You may be able to take out a mortgage to buy a commercial property by borrowing up to 50% of your SIPP’s value. You can also split the purchase of a single property between several pensions.
Commercial property can add useful diversification to your investment portfolio as it reaps long-term financial benefits, however it is less easy to trade due to the timely process of selling or buying property.
Talk to an expert
As with any investment, the risks and potential returns of any commercial property should be assessed before making an investment to avoid any costly mistakes.
It is important to do your research before investing and given the complex nature of this form of investment, seek advice from an expert.
The interest rate you can expect to pay on a SIPP mortgage will depend on your requirements, and will vary between lenders. For this reason, it is important to get advice from a specialist financial broker, who will be able to source the right products for you.
KLO Financial Services x Finance 4 Business
Terry Michael and Peter Komolafe are joined by Mike Kelly, Senior Business Development Manager at Finance 4 Business. This episode focuses on commercial properties, SIPPS and SSAS. The trio also discuss how COVID 19 has affected the market, touching on further topics such as CBILS, the bounce back loan and why the right advice from a team of wealth management and financial advisers can benefit you.
If you have any questions about using a SIPP to finance commercial property or would like some advice, please call us on 01926 492406.