It is very common for a pension scheme such as a SIPP (Self Invested Personal Pension) or a SSAS (Small Self-Administered Scheme) to hold commercial property as part of the overall pension portfolio for both diversity and potential tax benefits.
Types of Property
In general only property or land that is wholly used for commercial purposes can be held as an asset of a pension scheme, examples include:
- Retail units
- Industrial units
- Agricultural Land / Land used for commercial purposes
Residential property or property suitable for residential use is not a suitable asset within a pension scheme, although a building that is predominantly commercial but has an element of ‘job related residential property’ within it may be allowable e.g. a hotel / pub or guesthouse with manager’s accommodation. The rules around this are complicated and the pension provider will consider them on a case-by-case basis.
Borrowing for the purchase
You can borrow up to 50% of the net fund value of the pension scheme for the purpose of buying commercial property and the lender will usually require first legal charge over the property to be purchased.
There are a number of tax benefits of owning a commercial property in a pension scheme including:
- Tax relief on personal or company contributions into the pension scheme (subject to limits)
- Rental income received in the pension scheme is free from Income Tax
- There is no Capital Gains Tax payable on the sale of the property whilst it remains an asset of the scheme
- Your pension does not form part of your estate so the property and other assets within the scheme would be free from Inheritance Tax
Where can I get advice about my pension?
You can get advice about your pension arrangements by speaking to a financial adviser who is authorised and regulated by the Financial Conduct Authority (FCA). If you do not already have a financial adviser, you can click here for guidance from the FCA on finding a suitable adviser.