One of the main reasons people use a Self-Invested Personal Pension, or SIPP for short, is to buy a commercial property, either for their own business to use or to be let out to a third party.
It sounds complicated, but it doesn’t need to be, so we thought we’d take you through the basic A to Z of buying a commercial property in your SIPP.
1. Decide on your strategy. Are you buying a property which your business will occupy, in which case you will still have to pay rent but to your own pension, or will you let it to a third party? Of course your business could occupy part of the property and sub-/let part, the choice is yours
2. Find a suitable property. This is the fun part! Viewing property and imaging the possibilities can be very exciting, but don’t get carried away, remember your strategy and budget. You should also remember that a SIPP cannot buy residential property or a holiday home; it’s a big ‘no no’ and can’t be done, despite what some people will try and tell you
3. Organise your borrowing. SIPPs can borrow money to help fund the purchase of the property, but there are rules. A SIPP can only borrow up to 50% of its assets, for example if your SIPP is valued at £100,000 it can borrow up to £50,000, giving a total budget of £150,000 to fund the purchase and cover any fees such as legal costs, stamp duty, surveys, and other professional fees
4. Find a suitable SIPP. Some SIPPs will not allow you to buy a property, whilst other SIPP providers are very experienced in such arrangements. If your existing SIPP provider will not allow properties to be bought then you will need to consider a transfer to an alternative provider. Even if your existing SIPP provider will allow property purchase you should compare the costs of alternatives
5. Make an offer. So you’ve found a property and chosen your SIPP provider, it’s now time to make an offer. This works in the normal way, there’s nothing really different just because you are buying the property in your SIPP
6. Find a solicitor. You will need a solicitor to carry out the legal work associated with the purchase. Some SIPP providers will work from a panel of lawyers and insist you choose from this list, others will allow you to use any solicitor of your choosing; just make sure the one you chose has experience of dealing with buying a property in a SIPP
7. Organise a survey. You’ll want to make sure that the property you are buying isn’t falling down or about to cost you and arm and a leg in repair bills
8. Sit back and let the professionals get on with it. Once you’ve followed the first seven steps you can probably breathe a sigh of relief, settle back and let the professionals get on with completing the purchase
9. Find a tenant, move in, and arrange a lease. If your business is renting the property then you will need to draw up a lease and start paying rent, if you intend to find a third party then you’ll need to market the property, either through a professional agent or yourself
Our quick A to Z guide will help you buy a property in your SIPP, and whilst it might look easy there will always be complications along with way which is where your IFA and other professional advisers will really earn their fees.
Phillip Bray writes for Investment Sense and looks at the SIPP rules when it comes to buying a commercial property in your pension.
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