Our commercial property solicitors frequently advise on the benefits and opportunities of investing in commercial property through pension schemes in England and Wales. This strategy has gained traction among savvy investors and business owners, offering a tax-efficient and profitable way to grow pension funds.
In this article, we explore some of the common questions raised about investing in commercial property via a pension scheme:
Can you invest in commercial property through a pension scheme?
Yes! Pension schemes such as Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSAS) allow individuals to acquire commercial property as part of their pension portfolio. This means your pension can own a tangible asset that generates income and appreciates in value.
How does holding commercial property within a pension scheme work?
When a commercial property is held within a pension scheme, it is legally owned by the scheme itself. Rental income is paid directly into the pension, and any growth in property value benefits your overall pension fund. Our team ensures that every step, from property acquisition to ongoing management, complies with legal and regulatory requirements.
What types of commercial property qualify?
The range of properties that can be included in your pension portfolio is quite extensive, and includes:
- Offices and coworking spaces
- Retail units and shopping centres
- Warehouses and logistics hubs
- Industrial properties
- Agricultural land and buildings
It is important to note that residential properties are generally excluded from being held in pension schemes, except for mixed-use properties with more commercial use than residential.
Why consider commercial property for your pension?
We are not financial advisors, but from our experience, clients often find that commercial property investment offers:
- Tax advantages: Rental income and capital gains within the pension scheme are currently tax-free.
- Portfolio diversification: Property provides stability and reduces dependency on market-sensitive assets.
- Potential for steady growth: Commercial property has the potential for consistent rental income and long-term appreciation.
You should always take advice from a financial planner or pensions expert on your specific circumstances, before deciding to make an investment.
How can a SIPP or SSAS help you purchase commercial property?
Whether you're an individual investor or a business owner, SIPPs and SSASs offer flexibility in funding property purchases. Our commercial property team can assist with:
- Advising you on the right terms for the purchase of a property into a pension scheme.
- Ensuring compliance with pension trustee requirements.
- Managing the legalities of the purchase.
What are the tax implications?
The tax landscape is currently particularly advantageous for commercial property held within a pension. The position at the time we published this article is as follows:
- Exemption from income tax: rental income generated by the property is not taxed, allowing it to be fully reinvested into the pension fund.
- No capital gains tax: when the property is sold, any profit is retained within the pension scheme without incurring capital gains tax.
- Tax relief on contributions: contributions made to the pension scheme to fund the property purchase may qualify for tax relief, enhancing your purchasing power.
That said, costs such as Stamp Duty Land Tax (SDLT) and VAT on certain transactions still apply.
How does a SIPP or SSAS facilitate property purchases?
Both SIPPs and SSASs are designed to offer flexibility in investment choices, including commercial property. SIPPs are individual pension plans, while SSASs are typically used by small businesses, allowing multiple members to pool their resources.
The process of purchasing commercial property through these schemes involves:
- Assessing funds: reviewing the available funds in your pension and exploring additional contributions or borrowing options. Your financial advisor will be able to assist with this.
- Identifying properties: selecting a property that aligns with your investment objectives and pension scheme criteria. Again, your financial advisor will be able to guide you on budget and criteria.
- Obtaining pension trustee approval: ensuring that the pension trustees approve the purchase and manage the transaction. You should ensure you keep your pension trustee informed of your intentions.
- Completing the acquisition: finalising the purchase in compliance with legal and regulatory requirements.
What are the risks and other considerations?
No investment is without risks. Market fluctuations can impact property value, and the illiquidity of commercial property can pose challenges if funds are required urgently. Additionally, managing property involves ongoing costs and responsibilities. However, professional services advisers can help mitigate these risks with expert advice and robust planning.
What are the legal and regulatory considerations?
Navigating the legal landscape of commercial property investment in pension schemes can be complex. It is important to ensure compliance with regulations, secure trustee approvals, and address any potential pitfalls, which can give you peace of mind. We recommend taking legal advice and the advice of a financial advisor and tax experts.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
