SIPPs and Commercial Property

stphnstevey

I have a SIPP with H&L and also a couple of rental properties. I recently read a short article about investing in Commarcial property through a SIPP and was intrigued to find out more. It mentions 'guaranteed returns' and 'buy back', which on the surface sound good, but am not naive enough to know that it must come with some risks.

Can anybody point me in the direction of
- any good articles on this
- reputable companies doing this
- any advice on the topic, particularly from those that have actually done this themselves
- risks involved

Thanks

atush

There have been a number of posts here about it try a search. The most recent is this, but dealing with non standard commerical ie guest houses:

https://forums.moneysavingexpert.com/discussion/3739715

CannySaver_2

Hi

This is an area I have some experience in, a few points:

1. You can find a list of providers who allow SIPP Commercial Property purchase by clicking the link, this site provides comprehensive information on charges, allowable investments etc of a range of SIPP providers

2. You are probably aware that buy to let residential property is pretty much impossible to get into a SIPP, only commercial property is allowed (except in a handful of cases where a residential element is required for the business / commercial property to function)

3. HL do not allow commercial property purchase in their SIPP

4. The risks of buying commercial property in a SIPP are pretty much the same as buying it outside of a SIPP. Make sure you get the right property, which is easily letable (or indeed has a sitting tenent) and don't pay too much for it! One difference is the level you can gear to, in a SIPP it is 50% of the scheme's assets, outside a SIPP lenders might go to 70% loan to value. Also remember that if it is in a SIPP the proceeds from any sale with stay in the pension, if you buy outside a SIPP the owner of the property will get the proceeds, although they will of course be taxable, whereas the SIPP pays no tax

I hope this helps, happy to try and answer any other specific questions.

The Canny Saver

stphnstevey

Thats excellent, thanks CannySaver

Do you know anything of 'guaranteed returns' and 'buy back' as they seem to good to be true?

CannySaver_2

stphnstevey wrote: »

Thats excellent, thanks CannySaver

Do you know anything of 'guaranteed returns' and 'buy back' as they seem to good to be true?

There is a saying about things which are "too good to be true"!

Do you have a specific scheme in mind?

I tend to avoid things which offer high guaranteed returns. The guarantees are generally paid for by investors, who buy an asset at over value just so guarantees can be provided.

The Canny Saver

pj2503

Hello....
Total newbie to Sipps and forums....I've decided to grow up and start thinking about my retirement at the age of 49 ( always been a late developer) I'm just about to be mortgage free...(relief) I run my own relatively succesfull business and have done for the past 10 years. I do not have any real pension provisons to talk of, but have relatively healthy amounts of cash in my business. I am eager to start learning about commercial Sipps and whether I can purchase a commercial property which will allow me a pension in years to come

atush

First of all, are you a director of your company? Do you have an acct? He should have already advised you to start a pension and pay into it via the company as it will lower your tax as well and the company's taxes. As well as taking some of your pay in dividends which are taxed at lower rates.

I would not in your case focus only on commercial property in your sipp. AS you only seem to have property as an asset yourself outside your company- you don't want to be all your eggs in one basket.

Also you may have a limited time to get something set up- ther budget is next week and there could be changes. Talk to your acct TODAY abt setting up an executive pension scheme and whacking some in.

PS you really should start your own thread?

Neverland

I know some people with their own businesses or companies put their premises/offices in their SIPP and pay the rent into it

I'd imagine its quite tax effective as the rent will be a tax deductible expense for the business/company and received tax free in the SIPP

This is one thing you would need to get a knowledgable financial adviser to go through with you though

The big problem is that given the likely cost of a commercial property and the new lifetime allowance limits a big chunk of any one individual's pension fund would be in that property

If your husband/wife has a big pension fund and/or you have big ISA/VCT savings its less of an issue

atush

I agree abt the company offices (should the company own them or they are for sale) but you have to have suffiecnet funds in the pension to do so, and that is going to take some time.

and i don't rec you shoud put 100% into commerical prop even your own premises. Should something happen with your company not only would your business/salary cease but your pension would take a big hit too?

Neverland

atush wrote: »

I agree abt the company offices (should the company own them or they are for sale) but you have to have suffiecnet funds in the pension to do so, and that is going to take some time.

and i don't rec you shoud put 100% into commerical prop even your own premises. Should something happen with your company not only would your business/salary cease but your pension would take a big hit too?

Conversely you can always forgive yourself the rent due to your pension fund when times are tough to keep your business going

Lots of businesses die from their rent demands being excessive

Worst comes to the worst you can evict yourself and rent the property to another business

Horses for courses

That said I thought about and ruled it out for us because of the investment concentration on one property

CannySaver_2

Neverland wrote: »

Conversely you can always forgive yourself the rent due to your pension fund when times are tough to keep your business going

Lots of businesses die from their rent demands being excessive

No you can't the rent has to be arranged on a commercial basis, you could therefore do nothing that you wouldn't do to a third party tenant. The SIPP provider, as trustee (remember you are not the owner, merely the beneficiary) would expect the rent to be paid as per the lease agreement, you can't simply "forgive" the rent as you put it.

The Canny Saver