Including commercial property within a SIPP can have many benefits, particularly the diversification of assets, a rental income stream and long term capital appreciation with a lower volatility than equities.
It is possible to buy the following commercial properties (both leasehold and freehold): shops and offices, warehouses and business units, hotels, motels, forestry and agricultural land. However, any property where the short-term leasehold is under 50 years is unlikely to be acceptable.
As a guide, any property with a residential element cannot be placed into a SIPP plan. For example, holiday homes abroad or in the UK and nursing homes. However, please do not dismiss a property until you have contacted us as further investigations may mean that the property can be placed into the SIPP plan.
Current legislation allows for property bought and then leased to a ‘connected’ party to be acceptable as long as the transaction is carried out at ‘arms-length’. This includes appointing unconnected solicitors and surveyors and would allow, for example, a business’ Group SIPP to include the premises in which the company operates.
It is possible for the trustees of your SIPP to borrow money from a commercial lender in order to assist with the purchase of suitable property. HMRC guidelines state that the Trustees can borrow up to 50% of the net asset value of the SIPP, as calculated immediately before the borrowing takes place. This limit includes all existing borrowing.
The rent receivable by the tenants of the property must exceed the loan repayment and the interest due on the loan. Property purchase is relatively illiquid and a long-term investment. If you wish to take pension benefits within the next ten years, you must consider whether a property investment is suitable.
It is possible to allow a number of SIPP members collectively to purchase a property. The respective percentage interest of each party should usually be specified when the property is bought.
Emma Bunting is currently working for Stadia Trustees who speacialise in
SIPP Property Purchases.
