As you may be aware, a pension is one of the most tax efficient ways of saving for retirement.
A Self Invested Personal Pension (SIPP) can offer the most tax efficient way of saving through your pension by investing into commercial property. A SIPP can offer tax relief on contributions into the SIPP and, can avoid capital gains tax or further income tax liabilities. Such tax benefits will obviously depend upon your circumstances and the tax rules, which are subject to change.
A SIPP can be used in numerous ways for investment and can be used to purchase commercial property. This can be particularly beneficial to you if you are self employed and are able to use your SIPP to purchase your business premises. If you are already the owner of the business premises, then you could transfer the legal title in the premises to the SIPP and create a lease from the SIPP to your business. The business can then pay the rent to the SIPP, which will effectively be invested by the SIPP.
The business, via the lease, will pay for the outgoings for the commercial use of the premises such as the business rates and utilities. The rent will be payable by the business to the SIPP will be an allowable business expense so it reduces the tax you pay on profits generated by the business.
In addition, the rent paid by the business that goes into the SIPP, less any loan repayments that have been taken to acquire the property, is then pooled into the SIPP fund and generally grows free from income tax and capital gains tax.
A SIPP can only be used to purchase commercial property and you cannot purchase residential property through the SIPP. If you do have a mixed property; i.e. a commercial shop with a flat above, then this can potentially be overcome by splitting the title so that the SIPP can invest in the commercial element only, leaving the residential element of the property outside of the SIPP.
In order to arrange the purchase of the property through a SIPP you would firstly have to set up the SIPP. This can be led by your independent financial adviser. You should then be free to appoint your own solicitor and valuer/surveyor to provide professional services required for the property purchase.
The SIPP is usually run by a professional trustee who will deal with the administration of the SIPP and there will be fees payable to the SIPP provider for this. This is something that you should ensure that you are clear on before proceeding.
We at Rudlings Wakelam would be delighted to assist you with this. As your solicitor, we will carry out the various checks on the property which you wish to be bought, looking at all aspects of the title, carrying out the usual searches against the property to ensure that the property has the correct planning permission, that there are no environmental issues affecting the property, that the property has full means of access and all necessary rights required for the use of the property for the particular business to which the property is being let. We will also make enquiries to ensure that the property meets current health and safety regulations by liaising with your valuer/surveyor. We would then, as part of the process, prepare the commercial lease between the SIPP and your business and take care of all of the Land Registry requirements. In addition, we would be able to provide advice with regards to the Stamp Duty Land Tax which may be payable on the purchase.
It is also possible to acquire a commercial property through the SIPP and develop the property so long as prior approval is obtained from the SIPP and that the works will increase the value of the property.
If you are considering your options with regards to your investment, then potentially buying a commercial property through your SIPP may be something you are willing to consider. You should take specific advice from your independent financial adviser in relation to this and we would be delighted to act in respect of the legal services that you will require to purchase the property as highlighted above.
Should you require any further advice, please feel free to contact one of our offices.