Holding Property Investments within a SIPP Personal Pension

A Self Invested Personal Pension (SIPP) is a great pension product for someone who wants to take charge of their own retirement plans. SIPP Personal Pensions are offered by a number of pension providers. One of the nice things about a SIPP is that it is possible to hold assets such as commercial property in a SIPP. This article highlights the various ways to invest in commercial property in a SIPP.

The ability to hold property within a SIPP personal pension is subject to quite a few complex rules. It also depends on what SIPP provider you use.

Generally there are several ways of holding commercial property within a SIPP:

1. Commercial property unit trusts or Exchange Traded Funds (ETF's).
2. Shares in property companies, property related investment trusts and Real Estate Investment Trusts (REIT's).
3. Placing commercial property premises directly into a SIPP.

Commercial property unit trusts are a popular way for small investors to invest in property through a personal pension. Popular commercial unit trusts include those from Standard Life, Aviva and Ignis. The Ignis UK property fund is particularly popular. It pays out a monthly dividend.

Commercial property funds tend to be fairly illiquid at times, so sometimes it can be difficult to sell holdings in these funds. For this reason it is better to regard commercial property as a long term investment. The long term nature of property investment makes it an ideal investment to hold in a SIPP pension.

An alternative to a commercial property unit trust fund is to invest in a commercial property ETF. ETF's are bought and sold like shares, but as many are based offshore there is often no stamp duty to pay on the transaction. iShares has a range of commercial property ETF's. The most popular property ETF is the iShares UK commercial property ETF (stock symbol IUKP). There are also European, Developed Markets and Asian property ETF's. The iShares European Property ETF has the stock ticker symbol IPRP on the London Stock Exchange. iShares property ETFs tend to pay out quarterly dividends, so there is dividend income as well as the chance of capital growth over time.

Here's some more detailed information about investing in commercial property.

Shares in property companies,  property related investment trusts and REIT's can of course be held in most SIPP personal pensions. UK listed commercial property companies include British Land, Hammerson and Land Securities. These REITs have commercial property holdings of shops, offices, shopping centres, retail parks and industrial estates. Alternatively it is possible to invest in property management companies such as Savills.

REITs are a tax efficient way of investing in property. Most REITs pay out dividends as a source of income.

This third option is popular with small business owners who own their company's office building, shop, factory, warehouse or other commercial property. It is possible to place a commercial property into a SIPP. Note that the regulations regarding placing a commercial property in a SIPP are complex so a financial advisor is highly recommended. A tax specialist should also be consulted because depending on your personal circumstances it may or may not be tax efficient to place a property into a SIPP.

While placing a specific commercial property in a SIPP may sometimes be highly tax efficient, there are drawbacks. The biggest problem is that the most popular discount SIPP providers such as Hargreaves Lansdown don't allow specific commercial property to be added to their SIPP personal pension plans. So while another SIPP provider might allow you to put your commercial property in your SIPP, they may have much higher charges for holding a SIPP, such as an annual management charge or less generous initial charge discounts on unit trusts.

Note that there are a number of suspicious sounding investment schemes operating that claim to be able to offer big annual returns in return for holding certain commercial property ventures in a SIPP. New build commercial property is a high risk investment as there is no guarantee that tenants will be found for the property, and it is not always possible to accurately forecast what kind of rents tenants will be willing to pay for new properties. Again, always consult a specialist financial advisor before making a big investment in a SIPP.

Generally speaking residential property cannot be held in a SIPP. There are however some REITs or property trusts that invest in residential property, and these can sometimes be held in a SIPP. It's essential to get professional advice on these types of investment, as the UK government does tend to crack down heavily on schemes that flout ISA or SIPP investment guidelines. In many cases investors have been left with nothing to show for their investments when the government has deemed such schemes to be inappropriate for tax efficient savings schemes.

The author of this article is not authorised to give financial advice regarding SIPP personal pensions. This article does not consitute financial advice. Before making SIPP investment decisions consult an independent financial advisor.