Commercial property in a sipp or not.

[rfisher]

I've inherited 25% of a commercial property.

I'm considering increasing this to 50% by buying out my sib's 25%.

I don't have a sipp at the moment.

Should I put this into a sipp or not?

[PurpleMoonlight]

Do you currently have pensions worth the purchase price?

If so, does it have enough to buy your share too?

[rfisher]

I pay into an occupational DB pension which I plan to draw within the next few years.

[JulianPH]

What Purple is saying is that you have to have sufficient funds within your SIPP to purchase your share of the property.

What is your reason for wanting to put it into a SIPP in the first place?

[rfisher]

Right - so I'm hoping to 'in specie' it so no requirement to sell and buy, as I'll already own it, if I understand this aspect correctly.

SIPP to avoid (not evade) paying tax on the rental income and CGT on sale.

Also takes it out of inheritance tax calcs.

Would plan to drawdown on the SIPP eventually.

Make sense?

[JulianPH]

rfisher said:

Right - so I'm hoping to 'in specie' it so no requirement to sell and buy, as I'll already own it, if I understand this aspect correctly.

SIPP to avoid (not evade) paying tax on the rental income and CGT on sale.

Also takes it out of inheritance tax calcs.

Would plan to drawdown on the SIPP eventually.

Make sense?

Yes, that makes sense!

You will obviously have to pay tax on 75% of the withdrawals from the SIPP when you go into drawdown, but this route would cover you on everything else you list.

HMRC are, however, getting very hot and bothered regarding in-specie SIPP investments at the moment and there is a legal battle between them and James Hay at the moment. This might make it harder for you to find a provider who will take this at the moment.

I believe the legal battle is due to investors getting an additional benefit outside of their SIPP based upon the in-specie contribution made within it however and as this is not the case with you that would make life easier.

[PurpleMoonlight]

You will also need unused contribution allowances to the value of the inspecie contribution, and earned income equivalent to the same in the tax year of payment if you want tax relief on it all.

[rfisher]

OK, so much for the advantages of sipps.

What are the disadvantages of holding it in a sipp?

From what I can gather, it mainly boils down to not receiving the rent money directly and being at the mercy of numerous gubberment rule changes and interference.

[JulianPH]

rfisher said:

OK, so much for the advantages of sipps.

What are the disadvantages of holding it in a sipp?

From what I can gather, it mainly boils down to not receiving the rent money directly and being at the mercy of numerous gubberment rule changes and interference.

SIPPs offer all the advantages you were seeking, but because they provide full tax relief on contributions, no internal income tax or CGT and are free from IHT, they obviously come with investment restrictions!

The disadvantages you would personally face are the charges of using a SIPP to hold this asset and having to pay income tax on capital gains when you take money out (rather than utilise your CGT allowance outside of a SIPP).

This was why I was asking you what you wanted by moving the asset into a SIPP.

It could be a brilliant thing to do, but it could be a stupid thing to do. It depends on your requirements.

If you make in-specie contributions in and get full tax relief on these, only want to draw down income and wish to shield the capital gains against tax and the final capital value from IHT it can be an absolute winner.

If you put the asset in with no tax relief, do not need the IHT protection and could use your CGT allowance to cover partial sales of the asset (or lifetime gifting of the asset) to dependants, then the SIPP fees could completely outweigh the 25% tax free withdrawal benefits.

If you want to PM me with the actual details I would be happy to offer my opinion (I am not a financial adviser - so couldn't recommend or sell you anything - but do have professional experience in this sector, so I can offer some pointers).