Business
Business advice from Griffins – Neil Buckingham answers your questions
I own two commercial properties and operate my business from one of them. Friends have suggested that I would be better off if the properties were held in a SIPP. Are they right? Should I be considering these? Gary
Dear Gary
Increasing numbers of investors are enjoying the benefits of self-invested personal pension (SIPP) plans. As well as offering a wide choice of investment funds, SIPPs can incorporate commercial property, which has some attractive benefits:
n There are no income or capital gains tax charges on commercial property investments held in a SIPP.
n Investors can benefit through the receipt of regular rental income into the SIPP.
n Rental outgoings are an allowable business expenses that can be deducted before the company’s assessment for tax.
These are compelling benefits, but there are disadvantages too. If the property is a substantial part of the portfolio the potential lack of liquidity in a SIPP can be a risk, as can vacant let periods, for example.
The business can receive a cash injection if it uses a SIPP to purchase a commercial property that it already owns. Current market conditions have meant that many small businesses have seen conventional means of accessing capital withdrawn. If the business owners are confident in the long-term future of their business, using a SIPP to buy the commercial property is an alternative way of introducing cash into the business.
As well as individual business owners, SIPPs allow a syndicate of investors to collectively purchase a property with their pension funds.
This syndicated approach can be very attractive to doctors, dentists and other businesses that wish to purchase their own commercial property.
There is no requirement for joint owners to have equal shares in the property, so individuals with differing transfer values from existing pension plans can join together.
Individual and syndicates of SIPP investors can borrow against their funds to help buy a property. In simple terms the maximum loan is limited to 50 per cent of the asset value, so an existing pension fund of £300,000 could obtain a maximum loan of £150,000 to help fund the property purchase and cover associated costs (for example legal fees, insurance and stamp duty are paid by the SIPP rather than the individual).
Typically, the SIPP provider will appoint a property manager to regularly inspect the property, collect the rental and insurance payments from the tenant and pass both payments onto the SIPP.
The property manager will take care of rent reviews and lease renewals as appropriate, and also process any requests by the tenant, for example, to sub-let or for a change of use.
If you are interested in discussing how you could use your existing pension fund to purchase a commercial property please contact Neil Buckingham on (01635) 265265 or email n.buckingham@griffins.co.uk
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