A SIPP is a self-invested personal pension. SIPP’s are capable of holding Commercial Property such as offices or retail and industrial premises.
If you wish to purchase a commercial property and have a SIPP then you can borrow up to 50% of the value of the fund in order to purchase one of the above types of property.
Example: If your fund is worth £200,000 you can borrow an additional £100,000 to enable you to buy a commercial property worth £300,000. The money the property yields will then be used to pay the interest on the mortgage.
SIPP’s can directly hold Commercial Property including retail premises, offices, industrial premises and the land itself.
Other commercial property finance options
Apply for a commercial mortgage from a specialist property lender. Private lenders offer a range of funding options like commercial mortgages, bridging loans and property development finance. Click here for more about commercial property finance options.
Residential property within a SIPP
One of the most attractive features of a sipp is being able to buy and develop commercial property, as well as being able to borrow up to 50% of the existing fund to help you do so. Read our top reasons for investing in property.
Although residential property is not directly available in a sipp there are other accessible options. For example it may be permitted to buy a commercial property with a caretakers flat attached. This however, will be at the discretion of the sipp provider.
Another alternative for those interested in using their sipp for residential property may be available through a syndicate or collective fund. These schemes are available through a sipp provided, where there are at least 10 investors involved and they are looking to own at least three different properties that reach a total value of £1 million. Click here for loan advice.
However there are complex rules regarding this investment, for example, the investment must have a corporate structure; this can include unit trusts and open ended investments. Additionally no one property can make up more than 40% of the total value and no single pension fund can hold more than 10% of its shares/units.
It should be noted that not all sipp providers will accommodate this sort of investment; however specialist funds have been set up to provide for those who are interested. In addition to this investors do have the freedom to pick what residential property market they are interested in.
This allows investors to choose a property where there are strong rental markets and where healthy returns can be expected. However an investment should not be based on past performance and independent advice should be sought before proceeding.
Alternatively, other property related schemes that can be invested in include hotel rooms, nursing homes and student accommodation. These are classed as commercial properties by HM Revenue and Customs and can be held directly within a sipp. However, investing in these sorts of properties is a grey area and if HR Revenue and Customs class the investment as a residential property than a 55% tax charge may be levied. In these cases the sipp provider will have final say on what you can invest in.
Before attempting to invest in residential property using a sipp, investors should seek independent advice; due to the uncertainty of the rules for investment and the fact that not all sipp providers offer this option.
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