Commercial property can be held within a Killik & Co SIPP.
Commercial Property as an investment
Commercial Property can be held directly as an investment within the Killik & Co SIPP. This means that your pension fund can directly hold a commercial property whether this is a business property from which you run your company; a professional practice bought by self employed professionals or a commercial property with which you have no connection.
Whatever your particular need, the commercial property is purchased by Killik & Co Trustees Ltd, who then hold it for you. Any income, which normally comes from the rent, is paid to the Trustees who in turn will use it to pay the interest on any mortgage and to repay capital.
Over a period of time, the loan (if there is one) can be repaid and then the commercial property can then either be sold or used to generate an income for you through a drawdown plan. You can also borrow up to 50% of the net fund value of the SIPP for the purpose of buying a commercial property within a SIPP. Within a Killik SIPP, the value of your commercial property must not exceed 30% of the total value of your SIPP.
There is no income tax on any income paid to Killik & Co Trustees who hold the asset on your behalf and when the property is sold there is no Capital Gains Tax.
Tax relief is payable on SIPP contributions in the ordinary way. Our Tax Relief on Pension Contributions page illustrates this and it can be a very useful way, for example, for a business owner to use his SIPP funds to buy his own business property thereby releasing funds back into his business, but you should always be aware that tax legislation can change
Killik & Co Trustees have an obligation to the member to protect the member’s pension assets, so if your business can’t pay the rent then they may have to sell the property on your behalf.
Commercial Property Purchase and Management
Killik & Co will take the application for commercial property and will pass it to the experts at Barnett Waddingham who will consider every case on an individual basis. They will check that the property is feasible and meets the requirements of HMRC. Once this process is complete then they will instruct solicitors, valuers and surveyors and liaise between them all the way through to completion.
After the property has been acquired then they will undertake all the property management functions including the invoicing and collecting of all invoices, renewing leases, arranging rent reviews and repaying property loans. They’ll also arrange rent reviews and revaluations and any final sale of the property.
Borrowing within a SIPP
Craig owns his own successful replacement windows company, his business is growing and he is rapidly outgrowing the workshop unit he currently rents.
He has very little capital, but he does have a number of pension plans worth around £220,000. His adviser explains how his existing plans, if suitable, could be transferred to a SIPP that can be used to buy property, and the SIPP can also borrow money to complete a purchase. After careful consideration, Craig looks for a suitable property and finds a workshop on a new development which fits the bill, purchase price £240,000, it is located near a main road and has plenty of parking space.
Craig discusses all the issues with his adviser and, after working through the figures, decides to buy the property through a SIPP. This costs £260,000 inclusive of purchase costs and uses £180,000 of his £220,000 fund value together with SIPP borrowings of £80,000. After completion, the SIPP owns the property and leases it back to Craig’s business at a commercial rent. He gets tax relief on the rent, as if he was paying rent to an independent landlord. The SIPP uses the rent to cover the mortgage repayments and other property related costs any surplus funds are effectively investment growth within the SIPP. As rent accumulates it is available for investment into other non-property assets.
Craig also decides to start making regular pension contributions to the SIPP, which could provide a future cash “cushion” or help to repay the mortgage loan. There are, of course, downsides as well. For example, Craig is fortunate that he has a good tenant (himself) who pays the rent on time!
Over the years, the mortgage is repaid and the workshop grows in value. At Craig’s retirement, providing a purchaser can be found, the workshop can be sold free of capital gains tax and the proceeds made available to buy an annuity or fund unsecured pension income payments. Alternatively, he could sell his business but keep the workshop in his pension, receiving rent from the new business owner/tenant into his fund to cover unsecured income payments.
You can borrow up to 50% of the net fund value of the SIPP for the purpose of buying a commercial property within a SIPP.