From offices to airfields – here are the types of property we can (and can’t) hold in a SIPP

Commercial property purchase in a SIPP is a major part of what we do at IPM. We employ a dedicated property team, a member of which is allocated to each individual transaction giving you and your client a point of contact from instruction through to completion and beyond.

Over the last 20 years, we have bought more than 1,000 properties on behalf of our clients. We really enjoy working in this area, as no two property purchases are the same and it is good to see how using a SIPP in this way can form part of a client’s overall financial plan.

You’ve read about the various third parties involved in property transactions, which can vary depending on the nature of the purchase being undertaken.

Our starting point is that we will consider any UK based commercial property, either on a freehold or leasehold basis. Given that broad definition, you can imagine that clients present us with a wide range of scenarios, not all of which are acceptable to us!

To give you a flavour of the varied nature of the more than 1,000 purchases we have undertaken over the years, read on to discover the common, the not so common, and those we had to turn down for various reasons.

The common properties we deal with

Offices

Clients often ask us to purchase offices. These can come in various guises, from smaller buildings that are home to one tenant, to multi-floored, multi-tenanted office blocks and owner-occupied premises.

For larger premises, it is not unusual to see the primary tenant request a subletting clause in the lease, allowing them to sublet part of the building while continuing to pay full market value rent to the SIPP. This could be particularly attractive where the clients’ company is the primary tenant.

This was the case for one particular set of clients, who bought a two-level office using a group pension arrangement some years back.

Their plan was to expand the company over several years with the intention of occupying the entire premises. However, when they first moved in, the majority of the top floor was empty. To assist with their rental payments to the SIPP they sublet part of the first floor, negotiating their own terms with the sub-tenant.

When the tenant required more space, they stopped subletting and now occupy the entire building themselves.

Industrial units

Industrial units are another type of property clients often ask us to consider.

There are various types of units, some of which can cause a SIPP trustee more concern than others. For example, where any chemicals, petrol or oil may have previously been stored at the premises this would raise a red flag. Invariably, a higher level of environmental search would need to take place before a purchase can complete.

We recently undertook a part purchase of an industrial unit from a client’s own company. By setting up and consolidating the client’s various pension arrangements in a SIPP, we were able to use these monies to purchase around 40% of the building the client’s business operates from.

This means that the sales proceeds went from the SIPP straight into the client’s company while ensuring that the client ultimately retains control over the entire property (providing that the company pays proportionate market value rent, of course).

We have seen several purchases of property from clients or their businesses over the last few years, especially with the disruption caused by the Covid pandemic. Here’s a useful case study that explains how this can benefit a client.

Shops

We own lots of shops within our Scheme, occupied by a wide variety of businesses. However, if you walk down most high streets in the UK, you will see a flat or other residential property sitting above most commercial units.

You’ll likely know that holding residential property in SIPP is a “no”. Should a SIPP hold such an asset, the tax charges on both the asset value and rental income start at 40% and go upwards. However, this does not mean that where a building has a residential element the SIPP cannot help.

Instead of buying the entire property, the title can be split between the residential element on the first floor and the commercial element downstairs. The freehold of the title can continue to hold the residential element of the building and be owned by a third party (the client personally, perhaps?) while the SIPP can purchase the long leasehold title of the commercial element.

This allows the SIPP to purchase the shop while having no involvement with the first floor flat.

The “not so common” properties we deal with

Airfields

While we are not talking about a major airport, one of the more unusual types of property we have purchased on behalf of a client includes an airfield.

This is a 25-acre site based in the north-east. As well as the land, the site includes a runway as well as several hangers which are used for aircraft storage.

Don’t expect to see any large Airbuses or Boeings at this airfield, though! The site is leased to a company that allows the airfield to be used for light aircraft, recreational flying, and a flight school, with the tenant paying rent to the SIPP in exchange for use of the land.

Pubs

Pubs are one of the more favoured properties we are asked to purchase, and we own several pubs on behalf of clients. Some of these are more traditional pubs, while others combine a bar area and a restaurant.

What a number of these pubs have in common is that, on the first floor, there is accommodation where the bar or restaurant manager can live.

As we considered earlier, residential property and SIPPs are not something that go hand in hand. However, HMRC guidance has a “caretaker’s clause”.

Providing that it is a contractual obligation of the tenant for someone to be on site 24/7, and that someone is not the SIPP beneficiary, or anyone connected to them, it is possible for the SIPP to own the entire building without incurring a tax charge.

It is still worth starting with a degree of caution for any property with a residential element.

Fishing lake

An adviser we work with had a client who is in the fishing industry. The client owned several lakes within his business and an opportunity came up for a lake he wanted to add to his portfolio.

Funds within the business were tight, so he asked his adviser for other ways to raise the funds for the purchase. As the client had accumulated various pension pots over the years, they asked us whether this was something we would consider.

Although this is a fishing lake, we would consider this more of a land purchase. Clients often ask us to look at various types of land purchases, from this fishing lake through to farmland and campsites.

We have specific criteria when it comes to land purchases, taking into consideration not only HMRC rules but also our own requirements to ensure the smooth ongoing administration of the SIPP:

Access – any land IPM purchases on behalf of a client will always need to have access to a public highway. This is both for practical purposes so that any tenant can get to the land, and also in terms of ongoing market value. If the land the SIPP owns is landlocked then it is only likely to have value to those who have an interest in the land that surrounds it.
Tenant – any purchase of land by IPM is seen as a commercial investment for the SIPP. Therefore, there will need to be a tenant occupying the land who will be paying rent to the SIPP to use it. This will ensure that the SIPP is getting a return on its investment, and it means that land cannot be placed in the SIPP just to be held for alternative purposes.
Client’s property – land that is near a client’s residence is likely to make IPM feel uncomfortable, for reasons we are sure are self-explanatory!

The properties we have turned down

Residential buy-to-lets, AirBnBs and student accommodation

You read above about the difficulties SIPPs have when it comes to purchasing residential property.

HMRC issue guidelines for SIPP operators to work alongside and these guidelines are open to interpretation. While there are some specific exceptions the general guidelines from HMRC when it comes to residential property are vague. They deem residential as “something that is suitable for a dwelling”.

Each SIPP operator will take their own view as how to work with that definition. However, we will not consider purchasing any buy-to-lets, holiday lettings, AirBnbs, or student accommodation. In our opinion it runs too close to HMRC applying a tax charge.

Overseas properties

There is nothing in HMRC guidelines that prevent SIPPs purchasing properties outside the UK. However, this is something we will not invest in due to potential ongoing administrative issues that holding an overseas property in a SIPP may cause:

Appointing an overseas solicitor to act on behalf of a UK SIPP operator
Collection of rent in non-GBP currencies
Potential language barriers
Potential issues regarding property management
Overseas tax authorities understanding UK trust law and being able to honour the tax advantages given to SIPPs in the UK.

Wasting assets

If a SIPP purchases a “wasting asset” this could see it liable to tax charges. HMRC defines a wasting asset as “an asset with a predictable life of 50 years or less”.

There are various occasions when the worlds of SIPP property purchase and wasting assets can cross which give us problems:

Leasehold properties where the lease is around 50 years. As a rule of thumb for the benefit of the pension scheme we like to see 100 years plus, ideally 999 years!
Solar panels attached to buildings we are asked to purchase. The SIPP can purchase the building but not own the solar panels.
If land has solar panels, wind turbines or phone masts on it IPM is comfortable at looking at the land itself, but not the wasting asset on it.

Get in touch

If you have a client looking to buy a property through a SIPP – whether common or unusual – please get in touch to find out if we can help. Email info@ipm-pensions.co.uk or call 01438 747151.