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The benefits.

There are many advantages to using a self invested pension scheme to purchase commercial property – but there are also some important things to remember.

Key advantages:

  • Opportunity to borrow funds towards the purchase and development of the property
  • Contributions to the pension scheme and any basic rate tax relief can be used to purchase the property
  • Any gain on the value of the property when sold should be free from Capital Gains Tax
  • Open market rent is paid to the pension scheme and is free from income tax
  • Rental income payable by the tenants can be treated by them as a business expense for tax purposes
  • Property is outside the member’s estate for Inheritance Tax purposes
  • Property is owned outside of the business so is protected from creditors in the event of insolvency.

But remember...

  • Using all of your client’s funds to invest in property could increase their investment risk
  • Recent history suggests that property values can be as susceptible to fluctuations as other market sectors
  • Property is considered an ‘illiquid’ investment which means it may take time to realise its value. This can be a problem, for example, if your client is close to taking benefits
  • Issues such as environmental risk or restrictive covenants, can slow the transaction process significantly.

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