Key reasons to buy commercial property with a SIPP

Carl Lamb outlines the benefits of purchasing commercial property in a SIPP

• A SIPP is the most tax efficient way to purchase a commercial property. There is no CGT on disposal, no income tax on the rent received and potentially no IHT on death (dependent on the legal structure of the SIPP).

• A SIPP can and has purchased any form of commercial property which includes land, forestry, lakes, orchards, zoos, museums, caravan parks, railway lines, care homes, football stadiums and pubs. Wind turbines and mobile phone masts are also possible dependent on the SIPP provider's own rules.

• This is a good way to gear a pension as a SIPP can borrow up to 50% of net scheme assets. A £250,000 SIPP can therefore buy a commercial property for £375,000 (£125,000 of which would be a mortgage).

• The SIPP can also pay for any development and improvement works and be registered for VAT to claim the VAT costs back.

• SIPPs can also purchase jointly with other SIPPs or business / individuals. This can give you flexibility and more buying power i.e. 10 SIPPs with £100,000 each could buy a building for £1.5 million (£500,000 mortgage).

• For business owners this is a tax efficient way of buying their trading premises and effectively paying the rent to themselves tax efficiently as there is tax relief on contributions received and rent paid by the business is a business expense so tax deductible but when received by the SIPP is non-taxable.

• This also de-risks the business as a major tangible asset is ring fenced from creditors in the event of bankruptcy.

• A SIPP can transact with connected parties so it is a good way of releasing cash from your pension scheme to you as the individual or business as the owner of the property and getting the property in to a more tax efficient wrapper moving forward.

• Through a SSAS (the pooled occupational equivalent of a SIPP) this can be a very good way of succession planning and passing assets efficiently to the next generation.