Dentists, chiropractors, accountants and other professionals who own the premises from which they operate could benefit substantially from making their commercial premises an asset of their Self-Invested Personal Pension (SIPP).
This is possible even when the amount of liquidity in the SIPP is not sufficient to pay the full market value of the property because a SIPP can borrow up to 50% of the value of the pension pot.
The money otherwise locked in bricks and mortar can then be spent or invested in other personal or business projects.
Having received the cash for his property, the professional can continue using it for his business paying market rent to the SIPP. The rent is an allowable business expense, so the tax on the business profits is reduced. At the same time the rent paid into the SIPP grows in it free of income tax and capital gains tax, as commercial property is an approved pension fund investment. If the SIPP had to borrow money to buy the property, the rent can be used to repay the loan.
The pension fund and the former owner/present tenant can agree a lease based on the evenly balanced Law Society precedent, so long as advice on the level of rent and specific lease terms is taken from a RICS/FRICS qualified surveyor, to ensure they meet the “arm’s length basis” required by HMRC. The lease can contain a break clause to allow the parties to terminate the lease and sell the property in the open market when it is no longer required. The proceeds then return to the SIPP and can be used to fuel further investments and benefit payments.
There are of course solicitors’ and pension fund’s fees to pay plus Stamp Duty Land Tax. There are also risks to consider, such as falling property values, potentially reduced investment diversification and the costs associated with finding new tenants or selling the property should the business fail. However, it is an option that commercial property owners would be wise to discuss with their pension providers and solicitors.