Part purchase of commercial property through a SIPP

maooam

I am considering buying a holiday let property through a company I'll set up for this purpose using my SIPP as collateral for a commercial mortgage.

My SIPP capital contribution will be approx 20% of the value of the property and my business partner's cash capital will account for a further 20% of the property. The remaining 60% will need to be borrowed on a commercial mortgage.

Given I can only borrow a further 10% of the 60% (due to SIPP borrowing regulations) the capital my business partner will introduce to the company will need to be used as collateral for the remaining 50% required to purchase the property.

The main questions I have at this stage are:

Is a holiday let regarded as a commercial property if it's being purchased by a company and being used exclusively for this purpose?

Does anyone know of any banks that would lend based on this funding mix, namely the deposit being part SIPP and part cash?

Sorry if this is confusing but it seems commercial property purchase through a SIPP isn't the most straight forward.

Thanks for your help.

JOHNGT

Residential property is taxable unless it is held as part of a larger diversified fund worth at least £1m and holding at least 3 properties and with no one owner holding more than 10% of the shares of said fund on their own or in conjunction with other family members. Therefore, the only way to invest in residential property through a SIPP is by using a diversfied vehicle (this could be set up as a ltd company, unit trust, OEIC, REIT, property club). Holiday lets are residential.

If you are holding one property through a company, this makes no difference - the tax rules cover indirect investments in residential property too.

If you do invest in res property through a SIPP you will face a 55% tax hit (40% on you and 15% on the scheme). For this reason, most SIPP providers will not touch such transactions. They will only allow genuinely commercial property in the strictest sense of the word such as offices, shops, industrial units etc.

You are however allowed to buy a prison with your SIPP...

Johnmann90

Hi

I am very interested in your response to the question raised about holding a holiday let in a SIPP.

I thought that a holiday let (subject to meeting the minimum number of days available for and actually let criteria) is considered to be a commercial property?

Where am I making a mistake on this? I would like to buy a holiday let in a SIPP to let on a commercial basis, not for personal use until I retired in twenty years time.

Thanks

John

Loughton_Monkey

Try here:

http://www.hmrc.gov.uk/pensionschemes/ir76.pdf

Part 11 is, I think, the place to look.

I think (quite reasonably) HMRC are trying to avoid people using their pension funds to buy their own retirement property. All they are doing is trying to allow you to invest in property only at a 'distance'. The same, really, as any other investment, and preferably one that can be 'liquidated' easily and used ultimately for annuity or drawdown.

CannySaver_2

Hi

My understanding is the residential property is not allowed in an form of self invested pension i.e. a SIPP or a SSAS.

There are occasions when a SSAS can end up owning a residential property, for example if a loan from the SSAS was secured on a residential property and the borrower defaulted, but in this circumstance the SSAS would incur a tax charge.

I have some experience in property development and have been told by SIPP providers that as soon as a property becomes habitable it is deemed as residential. Therefore a SIPP could, for example, develop a piece of land, build the shell of a house, but would have to sell it before bathrooms and kitchens were fitted, and before mains water, gas and electric were connected.

Furthermore I believe a holiday home would be classed as residential.

It's worth clearing up one other point. When you use a SIPP to buy a commercial property it is not used as collateral in the traditional sense of the word, rather it actually buys the property (or part of it in conjunction with another SIPP, company or individual). A SIPP could buy a property outright or it can borrow up to 50% of it's value. But the property is owned as the SIPP, you do not own the property yourself or in the name of a company and use the SIPP as collateral.

A basis guide on how to buy a property in a SIPP can be found here:

http://www.!!!!!!.uk/technical-area/sipp-zone/a-step-by-step-guide-how-to-buy-a-property-in-your-sipp/

The Canny Saver

Iancfp

HMRC are strict on what is a residential property and holiday lets chalets etc are residential.

Larger multiple occupancy hotels are fine

The tax charge on having a residential property would be 70% not 55% in most cases as having a larger proportion of fund in such an asset gives an additional 15% charge.

As Cannysaver mentions buying land is fine and so is developement is any residential property is sold prior to becomming habitable - however if you do this on more than 1 occasion HMRC can have you for trading within your scheme and apply tax charges