Joint Ownership of comprop in a SIPP: can I purchase the remaining part later on?

If your client has their own business and wants to establish a SIPP to buy that commercial property, but they don’t have sufficient funds in their pension to do so, there are still options to make this a viable option.

Joint ownership can be used to gradually bring a property into the full SIPP ownership. For example:

1. Purchase – Mr Stewart currently owns and runs a café. The building has a commercial valuation of £100k but Mr Stewart only has circa £80k in his pension fund.
2. A SIPP is established, and, once fees are deducted, it buys around 70-75% of the title from Mr Stewart – this is joint ownership. Mr Stewart personally receives c£75k (once fees etc are deducted) from the SIPP. As this is a connected purchase, Mr Stewart must buy at market value and rent must be at market value.
3. The new owners are now Mr Stewart (around 20-30%) and Yorsipp Trustees Ltd (around 70-80%). These are different legal entities hence the joint ownership. Yorsipp Trustees will hold their percentage of the property in trust for the member: Mr Stewart.
4. Rent – The surveyor also calculates the commercial annual rent yield at 10% (£10k per annum).
5. £8000 is paid by the member’s business to his SIPP’s bank account – the rent can be reinvested as per IFA guidance. Rent is classed as investment income and is not subject to contribution limits.
6. Tax efficient – The share of the rent paid into the SIPP is free of income tax and any growth in the value of this part of the property is free from Capital Gains Tax (CGT). Note, the share of Mr Stewart’s owned part is still subject to tax.
7. Further investment – surplus cash from rent payments less any fees / charges can be used for investment. After 3 years the SIPP value has accumulated by £24,000 (minus fees) due to 3 years of rent at £8000.
8. Note, after 3 years, the property value might have increased above £20k.
9. The SIPP is now able to fully purchase the property by buying-out the remaining £20,000 (or more if the value has increased) from Mr Stewart. The café is now fully owned via the SIPP.

The figures are indicative only and do not fully take into account Yorsipp’s fees, any adviser charges that may be due and the legal fees and disbursements it will cost to acquire part of the property or eventually the full property.

Yorsipp are authorised and regulated by the Financial Conduct Authority under reference 464198 but are not authorised or regulated to provide financial advice. The above guide is intended for use by financial advisers only and is based on a simplified case scenario and should not be construed as being indicative of a specific case or clients’ circumstances. Yorsipp will only accept new SIPP applications from a suitably qualified financial adviser. Consideration will also need to be given for legal fees/disbursements, Yorsipp’s fees, any adviser fees and any other costs associated with the property.