Commercial property into SIPP

edited 30 November -1 at 1:00AM in Pensions, Annuities & Retirement Planning
3 replies 754 views
Wheeler_DealerWheeler_Dealer Forumite
4 Posts
We are an unmarried but long term couple with three young children. I am thinking of transferring my pension into a SIPP and my wife may set up a SIPP of her own. We own a freehold shop, unencumbered, which is currently in my wife’s name and are considering the possibility of transferring the shop into a SIPP and letting the property. We wondered if the best course of action would be to transfer the shop into joint ownership and divide the rent between the two of us which we would then pay into our SIPP's?
Thank you for any assistance.

Replies

  • LintonLinton Forumite
    14.1K Posts
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
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    We are an unmarried but long term couple with three young children. I am thinking of transferring my pension into a SIPP and my wife may set up a SIPP of her own. We own a freehold shop, unencumbered, which is currently in my wife’s name and are considering the possibility of transferring the shop into a SIPP and letting the property. We wondered if the best course of action would be to transfer the shop into joint ownership and divide the rent between the two of us which we would then pay into our SIPP's?
    Thank you for any assistance.

    If you put the shop into a SIPP then the SIPP owns the shop. So all rents would go into the SIPP as would any expenses associated with the shop. Your SIPP is a different "person" to you. I see that Prudential have SIPPs that allow you to hold commercial property. Who else does I dont know but would hazard a guess that it wont be your standard online SIPP and would also guess that as a niche product it would be expensive.

    If either or both of you own the shop you could of course put the rent into both SIPPs. However you only get tax relief on earned income, and rents arent earned. So the payment into your SIPPs would have to be covered by other income which is earned.
  • edited 30 October 2014 at 3:30PM
    Your_HeroYour_Hero Forumite
    883 Posts
    edited 30 October 2014 at 3:30PM
    We are an unmarried but long term couple with three young children. I am thinking of transferring my pension into a SIPP and my wife may set up a SIPP of her own. We own a freehold shop, unencumbered, which is currently in my wife’s name and are considering the possibility of transferring the shop into a SIPP and letting the property. We wondered if the best course of action would be to transfer the shop into joint ownership and divide the rent between the two of us which we would then pay into our SIPP's?
    Thank you for any assistance.
    You can't just "transfer" the property into your SIPP. You will have to use your pension fund to buy your property off you. There will be CGT for the sale on the gains you made from ownership.

    Once the property is owned by the SIPP, future sale proceeds will be free from CGT. You are required to pay market rent (no more or less) to your SIPP too, which just like other business expenses, will be tax deductible from your business accounts. The SIPP receives this rental income tax free.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • richonerichone Forumite
    30 Posts
    Part of the Furniture Combo Breaker
    Don't forget with the pension buying your property the following:

    CGT possibly on the sale of the property to the pension plan - but may have two CGT allowances to use husband & wife
    Costs
    - Solicitors, will need one to sell it and one to buy it, probably the biggest cost
    - Stamp duty on the purchase if a large enough transaction
    - valuation by a RICs qualified surveyor, as you are buying from yourself you need an independent valuation of the purchase price and rent to be paid if you are going to rent it back to yourself (can choose your surveyor normally)
    - usual property costs such as searches
    - may need to put leases in place
    - watch out for VAT on purchase price as it can affect your sums if you need to add 20% to the purchase price
    - its an illiquid asset you're investing in with on going costs and maintenance, if you dont get the rent in to the scheme it can turn sour quite quickly (eg the tenant goes bust) in extreme cases the SIPP provider may need to force a sale of the property.

    On the positives, SIPP and SSAS fees are getting lower, and a joint purchase may offer discounts by holding the property jointly.

    You dont need to buy the whole property at once, it could be done in instalments or left part owned by yourself and your pension. (may reduce the stamp duty).

    Rent paid in to the pension is normally an allowable business expense and is received gross and not taxed in the pension scheme.

    The pension can borrow up to 50% of the pension's value to assist with the purchase. Eg fund £100,000 could borrow £50,000 giving £150,000 to buy the property before costs.

    Buying the property from yourself gives you cash out of your pension and the pension gets the property as an asset with a good yield.

    Will be more attractive buying commercial property I think going forward as the changes to pension death taxes take away some of the worries of having an illiquid asset.
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