Investing in Commercial Property through your Pension
– Why You Should Consider It
If you’re a property investor in the UK, you already know the satisfaction of owning a good commercial property – steady rent, capital growth, and actual bricks and mortar that is tangible, which you can see and manage.
Did you know that you could use your pension to invest in commercial property? Well, you can. Why would you want to consider this? You will benefit from significant tax efficiency, ensuring your money is working harder for you, as well as creating some diversification within your property portfolio.
Though specific types of pensions – a Self Invested Personal Pension (SIPP) or a Small Self Administered Scheme (SSAS), you can directly invest in commercial property – meaning that all rental income and growth from the property will sit inside a tax efficient wrapper with no income tax and capital gains tax to pay, as well as benefiting from contribution tax relief.
Option 1: Self Invested Personal Pension (SIPP)
This would be suitable for individuals or self-employed professionals, who prefer direct control without company-level complexity. A SIPP is an individual pension scheme that allows you the freedom to invest into several types of funds and assets, e.g. commercial property specifically. It also allows you to borrow up to 50% of the pension’s value to help fund your purchase, therefore this means that you can lease the property to your own business at a commercial rent, which the company pays to your SIPP pension. The rent becomes a deductible business expense for the company and tax-free within the pension wrapper. Ideally, you would also choose funds that invest into other assets such as cash, fixed interest and equities to ensure diversification that will suit your attitude to risk.
Option 2: Small Self Administered Scheme (SSAS)
This works similarly but it is a small occupational scheme that is set up by a limited company for the owners, company directors and key members, such as trustees. A SSAS is a small Occupational scheme. Using the pooled pension funds, you can use it to invest into assets, e.g. commercial property, and then the business will lease the property from the SSAS, paying rent to the pension instead of a third-party landlord. The SSAS can lend up to 50% of its value back to the company, secured by assets, providing a useful source of business funding within HMRC limits – therefore this is an ideal option if you are looking to buy your business trading premises, which you will then rent back to your own business. As an extra bonus, all company contributions into the pension are tax deductible, helping you to reduce your corporation tax.
Ultimately, you can still invest into property, however you will just be doing it in a way that maximises your returns and strengthens your retirement savings. This type of investment is a sophisticated strategy that blends tax efficiency with tangible assets, but it requires careful planning and expert advice.
Curious about how using your pension to invest in property could benefit you?
Then reach out to Charlotte Whiteley on from Affirma Financial Planning Ltd for a no-obligation chat and find out how we can help you make the most of your pension.
These types of pensions will not be suitable for everybody, as they require investors to be happy in making their own investment decisions and may incur costs not usually associated with other types of pension schemes. There are strict rules on what property can be held and how. The value may fall as well as rise and you may get back less than the amount invested. Pension and tax rules can change at any time and will be dependent on individual circumstances.
SSAS are not regulated by the Financial Conduct Authority.
Direct investment in property is not available through St. James's Place.
Affirma Financial Planning Ltd is an Appointed Representative of and represents only St. James's Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group's wealth management products and services, more details of which are set out on the group's website . The St. James's Place Partnership' and the titles 'Partner' and 'Partner Practice' are marketing terms used to describe St. James's Place representatives.
