Claire Trott: Investing in commercial property through a Sipp

Sipps were initially founded on the investment in commercial property and it has only really been the past 10 years or so that they have come to be all things to all people.

Technically, a Sipp is just a personal pension where the member can choose the investments themselves, according to the FCA anyway. In my mind, however, a truely bespoke Sipp still offers commercial property and all the options that come with it. Of course, that is not to say there is not a place for toned-down Sipps because there really is no need for members to pay for options they will never use.

In the early days, those that wanted to get into the Sipp market often felt the need to have a commercial property offering in order to compete with the more established, although usually smaller, players.

This led them to take on a few bog standard commercial properties, which they really did not have the expertise or inclination to deal with, and so tended to outsource as much as possible. Now many of these providers have decided it is really not their market and have restricted or ceased doing this type of business entirely, focusing on what they can do. This is a good thing for members of those schemes but it does mean that market has shrunk somewhat.

When it comes to the options available for clients looking to invest in commercial property, a provider that is committed and flexible enough to deal with a constantly changing property market, and thus changing client needs, is key. The following points look at some more of the most crucial considerations.

Types of property

It is important to examine what types of properties are likely to be allowable by the provider. Just because it is not taxable does not mean the provider will be willing to accept it. There are some providers who will not allow long leasehold properties and insist anything they buy is on a freehold basis.

In addition, there may be some properties that have a residential element exempt from tax charges, such as public houses with a flat above or a caretaker’s flat. The provider will need expertise in this area in order to ensure  that they meet the exemptions and that no tax charges apply.


One of the great things a Sipp offers is the ability to borrow to increase the scope of what properties you can buy with the funds. However, we have seen providers putting in restrictions on new borrowing over the past few years, which goes against the flexibility of them offering commercial property in the first place.

Even if borrowing is not needed at outset, there is always the possibility it may be required in the future. Borrowing can be used to increase liquidity in the fund for other purposes, including development of the property or land owned by the Sipp. It can also be used to increase the amount of property the Sipp can buy.

Flexible combinations

It is not uncommon for a member to want to use their Sipp to help purchase a property or even buy some of their own property to put into it, but not the whole asset. This can be as part of a series of transactions over a number of years to feed the property into the tax efficient environment of a pension, or just because they want to hold the property with other people, or their company as a joint investment.

It is key that a Sipp provider is able and willing to do this because of the flexibility it can bring in the long term. And it is not just at the outset that this might be appealing: there may be times when the Sipp member wants to sell some of the property to a third party. If this is not available within the Sipp it could cause a number of issues, which may lead to a transfer to a new provider or the property having to be sold in its entirety at an inopportune time in the market.

Development opportunities

With many run down shops and offices around, as well as bare land, a Sipp can be a great way to buy an asset cheaply and increase the value using tax relieved savings in a tax privileged environment. This will protect any increase in the value from capital gains tax on the eventual sale.

Although members should be careful when developing properties, to ensure they are adding value and that the costs are reasonable, the Sipp provider will need to be able to facilitate the development of the property in the first place.

This is not a given and some providers will only allow some types of renovation. It is even possible for the Sipp to pay for residential planning permission and commence the process of development as long as it is not completed and suitable for residential use while still owned by the Sipp.

Claire Trott is head of pensions technical at Talbot and Muir