The SIPPs vehicle can be used to purchase the freehold of the commercial property that businesses occupy, ranging from shops, offices, surgeries, hotels and industrial units to land, forestry and farms. The open market rent value (for which, commonly, you will need a surveyors report as proof of OMRV) is then paid into the pension fund rather than to a landlord, thereby escaping tax as rental income, and they also avoid capital gains tax (CGT) when the property is sold. Outside of a SIPP, gains above £8,200 would be subject to tax. More and more business owners and members of partnerships have realised that there are clear and substantial tax advantages to using this method of investment. 

But investors need to be aware of new rules relating to commercial property in SIPPs. From this April 6th, trustees will only be able to borrow 50% of the value of the existing pension fund.  At the moment the SIPPs vehicle can be used to borrow much more and investments are made against the value of the property not of the pension fund.  Currently they can borrow up to 75% of the value of the property. So for premises worth £400,000, buyers would need a deposit of £100,000 in the pension fund, then the trustees could borrow the rest.   However under the new regulations they would only be able to apply for a loan of £50,000 on a £100,000 pension fund giving total funds of £150,000. Transactions need to be exchanged before April 6th in order to qualify. Completion is even more preferable to avoid any argument with the Inland Revenue.

There are only a few months left until the new regulations take effect so businesses need to act immediately if they want to take advantage of the higher gearing level. There are a number of parties involved in the process of buying commercial property for your SIPP which makes it a time consuming process; the vendor, solicitors for the vendor and purchaser, the provider as well as the administrator, the lender and the valuer.

In order to use a SIPP, purchasers must acquire a SIPP administrator, who deals with the related paperwork.  It is easy to find a local administrator by visiting www.sipp-provider-group.org.uk.  They will take all of the details of the property to verify whether it is suitable for a SIPP and will evaluate the finances to ensure that the necessary funds are in place to proceed.  Once this is done they will instruct lawyers to go ahead with the acquisition and will confirm this in writing to the lender to release the relevant funds, subject to a surveyors report, if relevant.  As independent chartered surveyors, Bruton Knowles are increasingly being called upon to value the property assets, set the open market rent value and advise on investment potential of different assets.