Taxation of commercial property investments
One of the benefits of buying commercial property through a SIPP or SSAS rather than directly or through a company are the tax benefits.
As with other pension investments any income received such as rental is exempt from income tax, and any gains made on the disposal of the property by the pension scheme are free from Capital Gains Tax.
On the death of the scheme member any cash funds raised by the sale of the property are also normally exempt from Inheritance Tax, along with any other pension benefits. The same applies if, instead of being sold, the property is transferred directly from the pension scheme to the member’s beneficiaries.
However, the acquisition of property by a pension scheme is treated as a disposal for money’s worth, so certain tax charges may be incurred at the point of acquisition. The vendors of the property may be liable for CGT/Corporation Tax on any gains made from the sale of the property to the pension scheme, and depending on the value of the property the pension scheme may be liable for Stamp Duty Land Tax.
If the property purchase is subject to VAT then the pension scheme will also be liable for this additional expense, although a pension scheme can be registered for VAT to reclaim any VAT paid. Provided the normal conditions are met, a pension scheme can also accept a transfer of property as a going concern, which will mean no VAT is payable at the point of purchase.
The pension scheme may also be required to charge VAT on rental income, and account to HMRC for the tax charged.
Please bear in mind that neither TM Trustees Limited nor Talbot and Muir are qualified VAT specialists. We therefore recommend that the VAT application and quarterly returns are dealt with by such a specialist. A successful VAT registration does not imply that any subsequent reclaim of input tax will be successful and, as mentioned above, advice should be sought from a qualified VAT specialist before registering.