Looking to purchase a commercial property using your self-invested personal pension? Robin Tait highlights the potential benefits of acquiring commercial property in this way, discussing rates and terms along the way.
The Financial Times recently reported that 30m workers are at risk of running out of money during retirement. It’s no surprise then that many of us are looking for ways to grow our pension pots to support our lifestyles.
If this sounds familiar, then perhaps you’ve considered using your pension funds to buy a commercial property thus increasing the pension’s net value. Purchasing a commercial property in this way comes with a few benefits:
- No capital gains tax on the sale of the property
- No income tax on rents received
- Potentially no inheritance tax on death (depending on the SIPP structure)
Whether you are purchasing a property on an owner-occupier basis – to run your business from, or as a commercial investment – to rent, you can expect to receive a loan up to 50% of the SIPP value. E.g. if your SIPP holds £200k, you could potentially receive a loan of £100k.
When purchasing on an owner-occupier basis, lenders will assess the adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of the trading business. Of course, we can talk you through this if you would like more information.
If you are purchasing a property to rent out, lenders will ask for evidence that a lease is in place prior to completion.
For both types of purchase expect rates to start from Bank Rate + 3.67%.
How this works…
To put this into perspective I thought I would give you a brief example of how I recently helped a client source finance via their SIPP.
My client was looking to purchase the premises from which his business trades from – recently valued at £400k.
He was hoping to make the purchase via his SIPP, which at the time of application held £300k. We approached one of the high street banks and they offered to lend the SIPP £150k to make the purchase.
The only condition was that the business had to put a lease in place to pay the SIPP an agreed monthly rental amount each year. A 10-year term was agreed.
This means that in 10 years’ time not only will the client benefit from the rental income, but also from the capital appreciation of the asset. On retirement, any rental income that the commercial property generates is paid directly to the client’s SIPP tax free!
Already invested using your SIPP?
If you have already taken the opportunity to invest in commercial property via your SIPP, there is also the option to release 50% of the current asset value to further develop your property or increase your portfolio subject to demonstrating affordability.
I realise that this is quite a complex subject, so if you would prefer to chat this through on the phone please do give me a call.
You can call me directly on 01625 416 391 or call the mainline on 0345 345 6788.
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14th August 2018