How to invest in property via your SIPP

How to invest in property via your SIPP

Property and pensions are the two biggest investments you are likely to make in your life. So, what happens if you combine the two and invest your pension in property? It can be done via a Self-Invested Personal Pension (SIPP), here’s how.

lovemoney staff

Mortgages and Home

lovemoney staff
Updated on 2 August 2022

What is a SIPP?

A SIPP – or Self-Invested Personal Pension to give it it’s full title – is a pension wrapper where you can invest in a wide variety of asset classes and enjoy the tax benefits of a pension.

However, as it is a pension you can’t access your money until you turn 55.

SIPPs allow you to put your pension savings in:

  • Unit trusts;
  • Investment trusts;
  • Government securities;
  • Insurance company funds;
  • Individual stocks and shares;
  • Cash;
  • Property.

This article is part of a wider series on investing, covering all areas from stocks and shares to buy-to-let, peer-to-peer and alternative investments. Click here to view the full guide.

Can I put my buy-to-let empire into my SIPP?

No. The rules on property and SIPPs are very strict, and you can’t buy individual residential properties to hold within your pension.

If you put an investment in your SIPP that HMRC deems to be residential you will be hit with a big tax bill of at least 55% of the investment.

Can I invest in any residential property?

Yes, but it has to be via a residential property fund or a Real Estate Investment Trust (REIT).

Residential property funds work like any other open-ended fund and offer some exposure to bricks and mortar like your own home, but they may also hold other asserts too.

They may invest directly in houses, or they may invest in companies that invest in property.

An open-ended residential property fund cannot hold more than 15% of the fund in one property, and also face restrictions on investing in properties with leases of less than 60 years and mortgaged properties.

You may also find there are delays on cashing in as the fund may need to sell property in order to return your investment.

REITs can be bought and sold on the stock market just like any other share and are essentially companies that invest in residential property.

At least 75% of a REIT’s profit must come from property rental and 75% of the company’s assets must be involved in the property rental business.

They must also distribute 90% of their rental income to shareholders. So, a REIT may be the most direct, efficient way to get exposure to the residential property sector via your pension.

How do I invest in commercial property via my SIPP?

Residential property isn’t the only property you can invest in though; commercial property often gets overlooked but can offer attractive returns.

There are two ways you can invest in commercial property via your SIPP.

The simplest way is by investing in a commercial property fund, but you can also buy commercial premises and put them in your SIPP. This is proving popular with small business owners who put their own commercial premises into their SIPPS.

But, those with a very large pension pot may consider buying other commercial premises to hold within their SIPP.

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