Commercial Property Purchase through a Pension
Buying UK commercial property through a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS) can be an effective way to leverage tax benefits and diversify your pension portfolio. It isn’t the right option for everyone, and holistic financial advice is a must if you are contemplating this type of planning.
Here are the steps and considerations for purchasing commercial property through these pension schemes:
1. Understand the Basics
There are two main pension vehicles that can be utilised for commercial property in the UK. These are SIPP (Self Invested Personal Pension) and SSAS (Small Self-Administered Scheme).
SIPP’s
A SIPP is a personal pension plan that allows you to choose and manage your investments yourself (within the rules on allowable pension investments), including commercial property.
SSAS
A SSAS is a small occupational pension scheme generally set up by directors of limited companies. It offers more flexibility and control, suitable for businesses that want to invest in commercial property.
2. Check Scheme Eligibility and Rules
- Ensure that your SIPP or SSAS provider allows investment in commercial property. Not all providers offer this option.
- Understand the rules regarding property investment, such as borrowing limits and usage restrictions. For instance, residential property is usually not allowed within SIPPs and SSASs.
The most effective way of doing this is to appoint an independent financial adviser as early in the process as possible. Markland Hill Wealth can help with this and act on your behalf.
3. Choose the Property
- Identify a suitable commercial property. This could be offices, warehouses, industrial units, or retail spaces.
- Conduct due diligence to assess the property’s value, location, and potential for rental income or capital appreciation.
4. Obtain Property Valuation and Survey
- Get a professional valuation to ensure the property’s worth and identify any issues that might affect its value.
- Conduct a structural survey to check for any potential problems with the property.
5. Check Funding Availability
- Ensure that there are sufficient funds within your SIPP or SSAS to cover the purchase. This can include the pension fund’s cash balance and any borrowing if allowed.
- A SIPP or SSAS can typically borrow up to 50% of the net asset value of the scheme.
6. Engage Professionals
Your Independent Financial Adviser at Markland Hill Wealth will:
- Work with you to choose a suitable SIPP or SSAS provider to facilitate the purchase.
- Help you hire a solicitor with experience in commercial property and pension scheme regulations.
- Ensure an experienced surveyor can provide initial and ongoing valuation and condition reports.
7. Make an Offer and Complete the Purchase
- Once the property is identified and valued, make an offer through your solicitor.
- If accepted, your solicitor will handle the legal process, including contracts, due diligence, and ensuring the property is held within the pension scheme.
This is just the start! There are then considerations like rental contracts, investment rules, payment of ongoing fees, regular valuation reporting and cash deposit/banking facilities. Again, Markland Hill Wealth is experienced at helping you deal with all of these challenges of commercial property ownership and can be on hand to guide you.
Conclusion
Investing in commercial property through a SIPP or SSAS can offer significant tax advantages and potential growth for your pension fund. However, it requires careful planning, professional advice, and a clear understanding of the rules and regulations governing such investments.
If you’d like to learn more, contact us today.