The benefits of holding commercial property within a Self-Invested Personal Pension (SIPP).

I recently arranged for a client to purchase a commercial property owned by his business via his Self-Invested Personal Pension or SIPP with fantastic results. Holding a commercial property in your SIPP can be a great option, read on to find out why.

What is a SIPP?

Firstly, a quick reminder on what a SIPP is. A SIPP is a type of pension that allows you to have more control over your investments, from stocks and bonds to funds—and commercial property. YOU are in control, and you get to decide where your money goes.

So why hold commercial property in a SIPP?

1. Tax Efficiency. When you hold commercial property within a SIPP, any rental income or gains from selling that property are free from income and capital gains tax. So, that rental income goes straight into your retirement pot, untaxed! It can be a fantastic contributor to growth over time.

2. Diversification. SIPPs usually hold traditional assets like stocks and bonds, which can be volatile. By adding property, you’re adding a physical asset with potentially lower risk and long-term stability. It’s a great way to diversify and balance out your retirement portfolio.

3. Business Use. If you’re a business owner like my client, there’s a great perk. You can use your SIPP to buy a commercial property that your business can rent, like an office space or warehouse. Your business pays rent to your SIPP, boosting your pension while funding your business space needs.

However, there are some potential downsides that you should consider before going down this route.

1. Liquidity: Property isn’t as liquid as stocks. If you need cash from your SIPP quickly, selling property can take time. So, this is best for people who are comfortable with a long-term strategy or those who can afford to hold commercial property alongside some other more liquid assets to fund any required income needs.

2. Management Costs: Buying and managing commercial property comes with costs—legal fees, management fees, and sometimes refurbishment. Make sure to factor these into your calculations.

In summary commercial property held within your SIPP is a great option if you’re looking for tax-free growth, want to diversify your portfolio, and are open to a long-term retirement strategy. However, you need to make sure you understand the costs and commitment involved. If you’d like to discuss this further, then please do get in touch and I’d love to talk to you about how this strategy could be used in your retirement planning.

• This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

• Levels and bases of, and reliefs from, taxation are subject to change and their value will depend upon personal circumstances. Taxation and pension legislation may change in the future.

• A pension is a long-term investment, the value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates, and tax legislation.

• The property market can be illiquid; consequently, there can be times when investors in property will be unable to sell their holdings. Property valuations are subjective and a matter of judgement.