Similarly, where the property is leased to the member’s own business it is unlikely that it will require the services of an external property manager. The clients, with the SIPP provider overseeing, can often manage the property themselves and obtain appropriate insurance cover with large savings under a block insurance deal.
The majority of properties are acquired for the purpose of providing accommodation for the member’s business, including offices, shops and warehouses. However, advisers can think beyond the obvious to more esoteric investments, including pubs, garages, and leisure facilities such as swimming pools, sport centres and snooker halls. Other, less common, investments include boat moorings, which are commercially leased providing excellent yields and appreciating in value.
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Another sector that has seen growth, which has now plateaued, is the direct holding of hotel rooms. Provided that it can be shown that these rooms are not residential, which remains prohibited from SIPP ownership in all but a few circumstances, there should be no barrier to the ownership.
Extra due diligence may be necessary to ensure that the laws and tax implications in which the hotel room is domiciled are known and understood. A word of caution should always be made with such investments that are, of course, unregulated, especially as claims of occupancy, yield and future capital values have rarely matched those promised at outset.
However, there are downsides to single property ownership in a SIPP. Firstly, clients investing directly to aid their company by buying business premises must understand the double jeopardy of the business failing. Not only would they lose personal capital and their means of income, but also the tenant contributing towards the growth of their pension.
Rental markets are still not as robust as they have been, meaning that clients can suffer with the liabilities of continuing insurance and rates bills while a tenant is found.
Commercial property is also still susceptible to the economy and to interest rates both in respect of borrowing and the gearing of their tenants. In addition, it is an illiquid asset, although to some extent the complete or proportionate transfer as a benefit payment in specie can mitigate this.
Finally a factor true of any single asset class is a loss of diversification and so increased risk. Many argue that commercial property is best held in a well managed collective portfolio, avoiding the risk of a single property void. Equally such an approach will average the returns and take away potential gain achievable on individual deals that are often sought by the entrepreneur – exactly the type of individual to whom a bespoke SIPP should be the appropriate vehicle.
Martin Tilley is director of sales and marketing at Dentons
