Commercial Property as a Pension Asset – Chantal Hodgson

Commercial Property as a Pension Asset – Chantal Hodgson

As the recent Olympics have shown, all the rewards of long term planning has been emphatically demonstrated with the British medal success. Without doubt financial planning and pensions go hand in hand to ensure the successful funding for a client’s retirement. However, the investment choices in SIPPs and SSASs can be wide ranging, but a particular asset usually considered for its longevity is commercial property.  Therefore, it was with some relief in the industry that the FCA confirmed that commercial property was to be classed as a standard asset in a SIPP, for Capital Adequacy purposes, and these rules come into effect next month.

One of the advantages of purchasing commercial property, is that the rental payments can support the ongoing liabilities from the pension scheme. The rental monies can be used in the short term, to fund any borrowing to purchase the property and in the long term, it can fund the income in retirement. These days, with the borrowing limits set at 50% of the pension scheme’s assets, typically the rental income is in excess of the cash flow required for the borrowing, and therefore accumulates in that fund. The accumulated money can be used to repay more of the borrowing and be used to fund tax free cash at retirement.

In addition, once the property is sold, the SIPP or the SSAS will not have to pay Capital Gains Tax, which can add merit to the client’s overall tax planning. Quite typically, especially with a SSAS, the occupational pension scheme set up by a Principal Employer can purchase the Employer’s Head Office or commercial premises. This can also be advantageous to the Member’s own commercial interests, by allowing the pension scheme to pay for any additional landlord costs to the building, for example, viable development work. However, HMRC have provided certain regulations on connected party transactions, and the team at Astute Pensions are happy to discuss them, if required.

With the introduction of Pension freedoms on 6th April 2016, the legislation also had a far reaching effects on death benefits, which included death benefits to be held for generations of beneficiaries without forming part of their taxable estate, unless the Member opted to use the asset to crystallise their pension. Therefore, it could be possible for commercial property being held in the pension scheme for generations.

At Astute Pensions, the Astute Complex SIPP, the Astute Group SIPP and the Astute SSAS all hold a variety of different types of commercial property, from offices to factory units and shops.

With both the Astute SIPPs and the Astute SSASs, clients can appoint Astute Pension’s preferred Solicitor or appoint their own Solicitor to undertake the conveyancing. Once the Solicitor has been instructed and the property has been purchased by the pension scheme, the rental payments can then be paid into the scheme, as per the lease terms. Property purchase are completed without unnecessary delays.

If you require any further information, please contact the team at Astute Pensions, who would be happy to assist.


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