SIPP - Commercial Property. Borrowing on untenanted property.

Ulysses75

Hi all

I’ve been a lurker on this forum over recent years and decided to join now, in part due to a question I currently have.


I’m mid 40s and have two pensions - one a SIPP with circa £400k primarily invested in equities and a personal pension plan through my employer which has circa £130k to which I continue to contribute via salary sacrifice. There’s also a small Defined Benefits pension in the background.


In summary, one thing I would like to consider currently is to use my main SIPP to purchase a commercial property. I’ve identified a commercial property that I believe to be appropriate. I estimate total upfront costs would be just over £500k to include all related fees of the purchase.


Therefore, I would need to borrow within the SIPP.


I’m aware of the potential negatives of commercial property investment in a SIPP (in particular, lack of diversification) so it’s not something I’m going to recklessly head full steam into.

However, my key question here relates to SIPP borrowing. I’m aware of the 50% limit and that a lender will require funds in the SIPP for unforeseen expenses, void periods etc. The most relevant point here is that the property is currently untenanted - so, in itself, would this exclude the SIPP from borrowing or would this be a matter for SIPP trustee and / or SIPP lender appetite and, if the latter, how realistic is it to anticipate a SIPP trustee / lender having appetite where LTV is low but the property currently remains untenanted?


Any insight from formers would be most appreciated.

Marcon

The lender (which must be a bank or building society) will have the same objective when lending to your SIPP as they would when lending to an individual: how safe is their money and will they get it back?

A lack of tenants isn't necessarily a barrier to getting a lender to agree to a loan, but they will obviously want to be sure that the property is capable of being let at a rate which will ensure their loan is (reasonably) safe.

Talk to a few lenders and ask them - that's the only way to find out. Make sure you have a detailed plan of why you consider your chosen property to be a good investment for your SIPP - and thus a good bet for them to lend on.

Please come back and update when you've done that; it would be really interesting to know what happens.

Spreadsheetman

Will your SIPP allow you to hold commercial property within it? I thought only a few specialist providers (e.g. Curtis Banks/Suffolk Life) did this?

Dox

Try Barnett Waddingham's SIPP: https://www.barnett-waddingham.co.uk/barnett-waddingham-flexible-sipp/investments/commercial-property/

ffacoffipawb

Could you do a partial transfer from your current employer scheme to take your SIPP over the £500k needed?

midlandsimon

I would avoid Barnett Waddingham looking at the charges on their website!!!!!


The issue you have here is borrower security, the bank are simply looking for their loan to be repaid. You will very unlikely be offered a loan by a bank with tenant.


SIPP providers do allow loans to be obtained from yourself personally/ company or external 3rd party so that is an option available to you also.

AnotherJoe

This would be an astonishingly risky proposition, akin to say just spending the whole contents plus borrowing to buy one single neil woodford fund within your SIPP.

I suspect you would find it very difficult to get a SIPP provider that would allow this because recent rulings mean that they are much more liable for poor investment choices than they were previously.