SIPPs and Your Business Property
The Self-Invested Personal Pension (SIPP) was introduced in order to give people far more control over how their pension pots are invested and have proven to be very popular with pension savers.
One common use of the SIPP in a business context is to sell business premises to the SIPP. Having a property in a pension fund means that any growth in the value of the property will accrue tax free. Furthermore, a market rent paid to the SIPP as landlord will not be taxed in the fund but will be an allowable deduction for Income or Corporation Tax by the payee. The accumulated surplus in the SIPP will be in a 'free of tax' environment.
If the building is 'opted for VAT', the SIPP can register for VAT and reclaim the VAT on the purchase and subsequent expenditure, albeit with an extra compliance cost as a result of the VAT registration.
There will also be costs associated with property ownership and management.
However, there can be disadvantages in certain circumstances and having a trading property in the hands of what is, in effect, a third party might add complexities to the sale or restructuring of a business. If such a sale goes forward without the need for the property, a void period could lead to the SIPP having a deficit and requiring additional funding from the SIPP members.
Properties tend to represent quite large sums and if the need to sell arises, it can sometimes prove difficult to accomplish a satisfactory sale expeditiously – and the cost of selling property is relatively high.