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Exploring SIPP property purchase and development

In this article we will explore commercial property investment through a SIPP, with specific reference to development.

An established SIPP is in the process of purchasing a freehold warehouse which is in a poor state of repair. The SIPP will bear the cost of refurbishing the property to make it suitable for an incoming tenant, whilst improving the property as a whole and increasing its economic lifespan.

As far as development and works are concerned, there are a number of requirements:

HMRC expects the pension trustees to act as any commercial landlord would. Where a pension property is to be developed, the trustees must be able to demonstrate that they have acted commercially. To evidence this, we will require written confirmation from a RICS qualified surveyor of the expected increase in the market value, market rent and reinstatement figure on completion of the works.

We require a schedule of the proposed works and estimates of the likely cost to establish that the pension can afford to carry out the works and that the cost of those works do not outweigh the likely increase in value. This is important, because part finished works can detrimentally affect the value and marketability of a property and if the cost outweighs the benefit this raises questions over the viability and commerciality of the development which could potentially lead to HMRC penalties in some scenarios.

In the case of a development to be undertaken by a company, or individual connected to the pension member, we will require two additional quotes from independent companies, before the associated company can proceed with the development, and to demonstrate to HMRC that the quotes are commercial. Once we have this information we will be able to assess whether or not the proposed development is acceptable.

In this case, the SIPP member is to be the tenant at the property. As works will be required prior to the member taking occupation of the building, at completion, an agreement for lease may need to be entered into, which legally obliges the tenant to commence the lease once the works are completed. Whilst the tenant is a connected party, this mirrors what would happen on the open market where a landlord would not agree to the works with the tenant being able to walk away once complete. The landlord would clearly want the tenant to commit to taking the lease once the works have been completed.

Any works that are deemed to be tenant specific fit out costs will be borne by the tenant and we can provide guidance on what is and is not classed as an allowable expense.

Whilst VAT is not payable on the acquisition of this property, the SIPP member should take specialist advice on whether to VAT register the SIPP, to be able to reclaim the VAT paid on the value of the works. If the SIPP is VAT registered, and an option to tax is made in respect of the property, any future sale of the property will be subject to VAT, and VAT will also be payable on the rent. On a future sale, VAT opting a property can impact on potential purchasers, so specialist expert advice should always be taken before making this decision. For example, a zero-rated business purchaser, such as a bank, would be unable to recover VAT on the sale price, therefore making the property a more expensive purchase.

Once the works have been agreed and have commenced, any invoices would need to be addressed to the SIPP trustees care of ourselves, and would need the member or their financial adviser to provide authority to pay.

There are several points to mention:

Genuine investment

It is important to note that any development or works undertaken at the scheme’s expense must benefit the scheme and not just the tenant. This is to say that the works should add value to the property, must be permanent (i.e. remain in place once or if the tenant vacates) and should not be specific to the tenant’s use of the property and which may harm the future marketability of the property on the open market.

Tangible Moveable Property

The scheme is unable to pay for anything which is classed as tangible movable property. Examples of this could include plant and machinery.

Borrowing repayments

If borrowing has been taken to assist with the acquisition and the property will not be occupied whilst any works are carried out, the Trustees will need to consider whether a repayment holiday can be negotiated with the Bank based upon the timescales for the work. If this cannot be achieved the scheme will need to have sufficient cash reserves upfront to meet any mortgage payments and other liabilities such as business rates, utility charges and insurance whilst the property remains unoccupied.

Development Fee

A development fee of 1% of the cost of the development, subject to a maximum of £1500.00 plus VAT will be payable to ourselves for our approval of the development and any contracts to be entered into.


It is important that any contractor provides evidence of the insurance that will cover the property whilst the works are ongoing and we will also need an amended reinstatement figure based upon the works having been completed so that we can ensure that sufficient cover is in place.

In the event that the property is covered under the Rowanmoor Pensions Property Insurance Policy, which is a requirement of the Rowanmoor Pensions SIPP and the Rowanmoor Pensions Family Pension Trust (Family SIPP) our insurers will require the following information and may raise further queries in due course:

This of course equally applies wherever a third party insures a property.

The information above illustrates one of the many variants of commercial property investment within our Rowanmoor Pensions products. If you need clarification on any of these points, please contact us .

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