Buying commercial property into a pension scheme
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Buying commercial property into a pension scheme
Buying commercial property into a pension scheme is one perfectly legal way of saving thousands on mortgage repayments. This loophole in the tax legislation comes about because of self-invested personal pensions, or SIPPS.
Sipps give the investor in the scheme the choice of where to invest their money, providing a far wider scope for different investment than traditionally constrained pension funds. When this comes to property, unlike most pension schemes, Sipps will allow the holder to invest directly in commercial property.
Furthermore, it is possible to invest directly into ones own company’s commercial property.
Buying commercial property and SIPPs
Should your partnership or company need or wish to purchase freehold commercial property, it is possible to use funds from a SIPP to buy the property outright, or failing this put down a deposit of 25% or more and pay off the balance with a commercial mortgage.
In this instance, the property is then owned by the pension fund. If the property then grows in value this growth is free of income or capital gains tax. Furthermore, any rent payable on the property (by the company or partnership) to the pension fund can be offset against earnings.
Furthermore, because the property is held in a pension, there is no need to pay any tax on rental income, capital gains tax or any profit generated by a sale. Any income that you draw from your pension whilst retired is taxed.
What are the benefits of buying through a SIPP
A SIPP gives you full income tax relief on the purchase price of a piece of commercial property. Furthermore, any rental income on the property will be collected tax-free in the pension fund. Proceeds from selling the property when it is sold by the pension fund will also be tax-free.
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