Purchasing a commercial property at auction using a SIPP

Although technically permissible, Yorsipp does not permit commercial properties to be purchased directly at auction by a pension scheme. This is because the legal, valuation and due diligence requirements needed to satisfy the trustees cannot normally be completed before contracts are exchanged at auction. 

However, a member may choose to bid and exchange contracts in their personal capacity, with the intention of assigning the purchase to the pension scheme trustees before completion, subject to trustee approval and all pension scheme requirements being met.

Client profile

David, aged 52, is a member of a SIPP with Yorsipp. He identifies a tenanted industrial unit at auction with a guide price of £450,000, which he believes would be an attractive long-term investment for the pension scheme.

The opportunity

The property is being sold at auction with a sitting tenant and an existing lease generating rental income. David wishes to acquire the property through his SIPP because rental income and future capital growth may be received within the pension scheme's tax-efficient environment.

However, the auction timescale does not allow sufficient time for:

• Trustee due diligence.

• Legal review and Report on Title.

• Property valuation.

• VAT registration and Opt to Tax requirements.

As a result, the SIPP cannot bid directly at auction and David must decide whether to proceed personally.

David's approach

David decides to bid personally and successfully secures the property for £460,000.

Under the auction conditions:

• He immediately exchanges contracts.

• He pays a 10% deposit (£46,000) from his personal funds.

• Completion is due within 20 working days.

Before bidding, David had confirmed with the auctioneer and seller's solicitor that the purchaser's name could be changed to the SIPP before completion, subject to trustee approval.

Pension scheme due diligence

Following the auction:

1. A solicitor is instructed to act for the SIPP.

2. A RICS-qualified surveyor provides an independent valuation.

3. The trustees review the tenancy documentation and title information.

4. Confirmation is obtained that the property meets the requirements for a pension scheme investment.

5. VAT registration and the Opt to Tax process are completed (where required).

The trustees are satisfied and agree to proceed.

Successful outcome

Prior to completion:

• The purchaser is substituted from David personally to the SIPP.

• The SIPP provides the purchase funds.

• David's £46,000 deposit is reimbursed to him by the SIPP in accordance with the auction arrangements.

The property becomes an asset of the SIPP and future rental income is paid directly into the scheme.

What could have gone wrong?

Had the solicitor's Report on Title revealed a significant issue, such as:

• Defective title.

• Environmental contamination.

• Unacceptable lease terms.

• Planning concerns.

• Trustee concerns over proposed investment.

The trustees may have refused to proceed.

David would then have remained personally liable under the auction contract and could have:

• Lost his £46,000 deposit.

• Been required to complete the purchase personally.

• Faced legal action from the seller for breach of contract.

Alternative scenario: Buying first, selling later

Suppose the auction conditions did not allow a change of purchaser.

David could still complete the acquisition personally and later sell the property to his SIPP, subject to:

• An independent market valuation by a RICS-qualified surveyor.

• Trustee approval.

• Full pension scheme due diligence.

However, this route may involve:

• Two separate legal transactions.

• Additional professional fees.

• Potentially a second SDLT, LBTT or LTT liability.

• Additional administration and delays.

   

Key lesson

Commercial property auctions can present attractive investment opportunities for pension scheme investors, but auction purchases carry significant risk. Until the trustees, solicitors and valuers have completed their reviews, there is no certainty that the pension scheme will ultimately be able to acquire the property.

Members considering this strategy should obtain specialist pension, legal and tax advice before bidding and should fully understand their personal liability if the pension scheme cannot proceed.

Important: A successful auction bid creates a legally binding commitment. If the pension scheme subsequently declines to purchase the property, the individual bidder remains responsible for all obligations under the auction contract and may lose some or all their deposit, as well as being required to complete the purchase personally.

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.

Note that tax treatment depends on individual circumstances. The specific tax benefits or implications rely on the unique financial position of each client and tax rules may change in the future.