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Buying commercial property through a pension fund

Buying commercial property through a pension fund can be highly tax-efficient, so here’s what you need to know.

Type of pension vehicle

You can buy property through two types of pension schemes:

  • A Self-Invested Personal Pension (SIPP)
  • A Small Self-Administered Scheme (SSAS)

Type of commercial property

Any property you buy in your SIPP or SSAS must be classed as commercial. Permitted commercial investments include business premises, offices, shops, gyms, factories, hotels and care homes. The property can be long leasehold or freehold.

Tax benefits

In the UK, there are several tax benefits associated with buying a property through a pension fund. These include:

  1. Tax relief on contributions: One of the primary advantages of investing in property through a pension fund is the tax relief on contributions. When you make contributions to your SIPP or SSAS, you receive tax relief at your marginal rate of income tax. For example, if you’re a basic rate taxpayer, every £100 you contribute effectively costs you £80 after tax relief.
  2. Tax-free growth: Any rental income generated by the property held within a pension fund is exempt from income tax.
  3. No Capital Gains Tax (CGT): Unlike property owned personally, where Capital Gains Tax is payable on any profit made from selling a property, capital gains within a pension fund are completely exempt from CGT.
  4. Inheritance Tax (IHT) benefits: Typically, properties held within a pension fund are outside of your estate for IHT purposes, which can be advantageous for passing on wealth to your beneficiaries.
  5. Tax-efficient borrowing: If borrowing is used to finance the purchase of a property within a pension fund (e.g., through a mortgage), the interest payments on the borrowing can be tax-deductible within the pension scheme, reducing the overall tax burden on the investment.
  6. Flexible pension drawdown: When you reach retirement age, you have flexibility in how you can draw down your pension fund. This flexibility includes the option to take a tax-free lump sum (usually up to 25% of the fund value), and the remainder can be used to provide a taxable income, potentially including rental income from the property.While significant tax benefits are associated with investing in property through a pension fund, there are also strict rules and regulations governing such investments. It’s essential to seek professional financial advice.

We can help you secure finance for your property investment via your SIPP or SSAS. If you’d like to know more, please get in touch.

Buying property through a pension

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