SIPP Pension Investment Choices

Unlike other personal pension schemes, a SIPP can hold a wide range of investments, which grow virtually tax free. However a SIPP with a wider level of investment choices may come with higher charges and therefore it is important to check the charging structure of a SIPP.

Permitted SIPP investments include

  • UK stocks and shares including shares listed on the Alternative Investment Market (AIM)
  • Overseas stocks and shares quoted on a Recognized Stock Exchange
  • Unquoted shares
  • Deposit accounts (in any currency providing they are with a UK bank or building society)
  • Government securities and other fixed interest stocks
  • Unit trusts
  • Open ended investment companies (oeics)
  • Investment trusts
  • Insurance company funds
  • Commercial property (such as offices, shops or factory premises)
  • Traded endowment policies
  • Permanent Interest Bearing Shares (PIBS)
  • National Savings products
  • Warrants

Investing in commercial property

One of the main attractions of a SIPP is that it can be used to invest and develop commercial property, such as offices and shops. A SIPP can borrow up to half the fund value it already holds to purchase commercial property. The rent from the property can be used to cover the mortgage repayments or, if there is no mortgage to be paid, it can remain in the SIPP fund and used for other investments.

Investing in commercial property is a particularly popular investment option for small businesses owners, as it allows them to purchase premises for their company through their pension funds. Using a larger pension fund in this way also offers several attractive tax benefits, such as:

  • The rental income paid into a SIPP is received tax-free
  • There is no capital gains tax to pay
  • There are no tax liabilities when the property is sold
  • In the event of the death of the SIPP holder (before the age of 75 and before they start accessing their pension), beneficiaries can receive the proceeds of the sale of the property free of inheritance tax.
  • The costs of buying and managing a property in a SIPP need to be taken into account, as these can be quite high, and there are also legal and valuation fees to pay.

It should also be taken into consideration that if the business were to fold, the owner would not only lose their source of income, but the pension fund would also lose its tenant, leading to the property being offloaded as a SIPP investment.

Can I invest in residential property with a SIPP?

A SIPP cannot be used to invest directly in residential property, although investing in a commercial property with a residential element such as a caretaker or gardener’s flat may be permitted provided it is rented to an unconnected person.