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Buying a commercial property through your SIPP
25 April 2024
Accounting & Compliance, Building a Business, Property Investors & Developers, Property Owners, Structuring a Business
What is a SIPP?
SIPP stands for Self-Invested Personal Pension.
Ultimately, it is very similar to an ordinary personal or workplace pension, just with more flexibility over what your pension fund is invested in – one of these flexibilities being commercial property, which can result in some great tax benefits!
How does it work?
Over the years you may have built up a pension fund of substantial value.
Instead of your pension being invested in say stocks and shares, you can instead use the funds to purchase a commercial property – whether this be an industrial unit, pub, shop or other commercial building.
You can also borrow up to 50% of the value of your SIPP from a bank as a commercial mortgage, giving you even more flexibility.
So if your pension pot has a value of £200k, you’ll be able to borrow another £100k from a bank.
What are the tax advantages?
- You won’t pay capital gains tax on the sale of the property – if you choose to sell the property after a period of time, any increase in value will remain within your pension fund tax-free.
- You won’t pay any income tax on rent received – again, rent from tenants will accumulate within your pension fund tax-free!
- SIPPs are not subject to inheritance tax, so the property would pass tax-free to your heirs when you die.
If VAT is charged when you purchase your commercial property, it is possible to register your SIPP for VAT and elect to tax the property.
This way, you’re able to reclaim the VAT you’ve incurred.
In the event of bankruptcy, the property is protected from creditors.
My business currently rents its premises – can my pension buy the building and pay rent to me instead?
Yes!
This can be a very valuable option for business owners.
Essentially, your SIPP would purchase your business premises from the third-party owner.
Instead of your company paying rent to a landlord, it continues to pay rent, but this rent instead goes straight into your SIPP tax-free.
The rent paid must be market value, however it is still fully deductible for corporation tax purposes for your company.
It is worth noting that there is no relief for Stamp Duty as a result of purchasing through a SIPP.
SDLT will be charged at the normal commercial rates so it’s important to ensure there’s enough funds left in the pension to cover this charge and any other legal fees.
I already own my company premises – can I transfer that to my SIPP?
You can, however there may be tax implications for you.
You’ll be liable to capital gains tax on any increase in value at either 10% or 20%.
Please get in touch if you’re considering transferring a property you already own so that we can assess the tax implications.
How about a residential property?
Unfortunately, you’re not able to purchase a residential property to rent out within your SIPP.
However, some buildings that have a residential element are classed as commercial buildings in this respect.
Residential homes for children or those that provide care to the elderly or disabled all count as commercial property so can be purchased in a SIPP.
Should I buy a commercial property through my SIPP?
With the correct advice, utilising your SIPP to purchase a commercial property can provide extremely valuable tax reliefs.
If you’re interested in finding out more, please contact Christie via email or call us on 01634 731390.
Please note that the above should in no way be taken to be financial advice.
Whilst there are tax benefits to owning a commercial property within your SIPP, it is not without risks.
Property values are subject to value fluctuations and can take time to sell – this could leave you with less cash in your pension fund, or without cash when you need it.
We recommend always taking financial advice before proceeding with any pension transactions.
We have advisors at our sister company – Friend & Grant Wealth Management – who would be happy to assist.
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The content in this blog is correct as at 25th April 2025. See terms and conditions.
