A self invested personal person (SIPP) can buy and hold commercial property in a very tax efficient manner. We have many years experience arranging these types of mortgages and have assisted in various transaction structures involving single and multiple SIPP’s buying commercial properties.
Advocate Finance are not SIPP managers or trustees and therefore any technical questions on the relevant tax rules, or what type of commercial property can be held in a self invested personal pension, are best directed to a SIPP manager / trustee but in principal it is our understanding that any non residential property can be held within a SIPP but it cannot acquire goodwill is connected with a trading business property (e.g Hotel or a pub)
We can help with any SIPP mortgages and finance related questions. The maximum you can borrow within a SIPP mortgage is 50% of the SIPP’s net asset value less current borrowings. This is a pension legislation rule which the manager / trustee must observe. If your SIPP had assets of £400,000 and already had a mortgage of £100,000, the maximum the SIPP could borrow is £150,000 (£400,000 – £100,000 X 50%)
If the SIPP were to enter into a mortgage, the rent from the property must meet the lenders affordability criteria (standard criteria is that the rent must be greater than the mortgage payment by 125% but lenders do have some flexibility). The mortgage lender will underwrite the transaction as a commercial investment mortgage so the lender will want to know details of the tenant and if they are a connected party (ie the tenant is connected to the beneficiaries to the SIPP). The quality of the property is very important as the lender has no other security but the property. The lender cannot take personal guarantees and therefore has no recourse to the beneficiaries.
If you are considering using a Self invested personal pension to hold commercial property you need to understand that the criteria of both the SIPP manager / trustee as well as the mortgage lenders will need to be met.