Buying property through a pension scheme: How it works and what the tax advantages are

May 5, 2022

Introduction

One of the most tax efficient way of investing in properties is to use funds from your pension (SIPP or SSAS).
If you are contemplating buying property in Aberdeen via your pension fund, it’s a good idea to think about finding the best accountant with whom you can have a brief, informal chat as the tax implications are significant.

Before you do so, and with the tax angle in mind in particular, here are a couple of basic facts of which you need to be aware.

• Technically, it is possible to purchase a property (including a buy-to-let property) using your pension fund, but if you do, HMRC will hit you with a pretty hefty tax bill.
• You can invest in commercial property via a SIPP or SSAS and enjoy significant tax benefits.

The problems with residential property purchase

Let’s deal with the problem of buying a residential property with your pension first. If you do go ahead, you could pay up to 55% of the value of the property to the taxman. Ouch!

You also have to bear in mind that there are all the associated costs with a property purchase (estate agents fees, stamp duty, surveys, etc.), and if it is a buy to let property, there are ongoing maintenance costs and the risk of problem tenants.

There is another possibility to consider, and that is you can purchase a residential property via a Residential Property Fund. However, you will not have any say over the properties in the portfolio, and you will probably have to pay significant management fees plus charges.

As you can see, buying a residential property in Aberdeen through your pension has many disadvantages. On the other hand, purchasing commercial property can bring several tax benefits.

The advantages of purchasing a commercial property via a SIPP or SSAS

You can buy a commercial property (or commercial or agricultural land) in Aberdeen via a SIPP (Self-Invested Personal Pension) or an SSAS (Small Self-Administered Scheme). The property or land can then be let to your company if you have one, or to a third party.

Any rental income and capital growth this option generates will be tax-free, with the rental income being paid into your pension scheme. It’s a win-win.

Get the best advice on purchasing property in Aberdeen through your pension

For more information, contact A2Z Accounting today. We are considered one of the best accounting firms serving the Aberdeen area and will be pleased to discuss the landlord tax benefits of purchasing commercial property in Aberdeen via a SIPP or SSAS at your convenience.