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Make tax savings using a personal pension plan to acquire commercial property

Acquiring commercial property through a pension scheme may be something very new for potential landlords.

But using a Self-Invested Personal Pension (SIPP) is one of the most tax-efficient investments an individual can make, according to independent pension administrator and professional trustee company Options UK.

While many might question buying commercial property during the current market and the aftermath of lockdown restrictions, the SIPP delivers tax savings by allowing landlords to become their own commercial property tenants.

Will I be able to make tax savings?

If they use the property themselves, they pay rent to the SIPP, which becomes an allowable business expense, reducing tax liability on profits.

According to Options, the SIPP owner receives rental income from the property tax-free and incurs no CGT liability when the property is eventually sold.

The rent paid by the business then accumulates tax-free within the SIPP, thereby creating income that could be used to invest elsewhere.

It’s a win-win as both the SIPP holder and the business benefit from enhanced stability, with a stable landlord who has no intention of selling, and a stable tenant who can be relied upon to pay the rent.

Anyone who has a Flexible Retirement Plan can invest in the SIPP. It can be quite complex so consulting your financial adviser would be wise.

Is this a good time for property investment?

According to Lisa Bardell, Business Partnership Manager at Options UK, there has been a steady flow of SIPP-related property purchases over the past 12 months.

She said: “There have been several encouraging signs within the commercial property sector since the start of the year.

“For example, we are receiving more enquires, and the transaction prices are less inflated than were previously, which enables easier negotiation.”

Ms Bardell added: “HMRC rules governing property SIPPs are more involved than those designed to accommodate different forms of securities.

“It is vital, therefore, that existing or prospective owners of property SIPPs are au fait with the rules, which is why we believe there is significant demand among business owners for a clear explanation of their property options.”

For help and advice with commercial property matters, please get in touch with our expert team today.