Commercial property in Sipps is not for the inexperienced or smaller investor, says Martin Tilley, director of technical services for Dentons Pension Management.
While many Sipp investors will hold property as a pure investment and this is let to unconnected tenants, Mr Tilley says a large share of the market is for individuals who choose to own the property from which their business trades in their Sipp.
While an element of double jeopardy exists should the business fail, in that the Sipp loses its income, Mr Tilley says when it is running profitably, payment of rent into another pocket of the members wealth is attractive - and is also deductible for tax purposes.
Andy Leggett, head of Sipp business development at Barnett Waddingham, says potential investors will need a large enough fund to make this type of investment viable.
But he says potential investors could reduce the threshold by buying the property with co-investors, whether they are using Sipps or not.
Another key factor is any potential investor must have a long enough time horizon, he adds.
Mr Leggett says: “Typical Sipp property investors include small business people, professionals with a practice premises and those involved in an aspect of property themselves (perhaps as investors in their own right or through work such as property management, surveying, etc.).
“It is not unusual to find a preference for physical assets and a reticence to hold stock market based investments among such people.”
Robert Graves, head of pension technical services at Rowanmoor, says another consideration is the comfort factor of the investment being something as tangible as bricks and mortar rather than an investment product evidenced only by certificates and terms and conditions.
This attitude is signalled by investors shunning pensions and savings products in favour of buy-to-let property, Mr Graves says, despite not having the tax advantages of pensions.
Investing in commercial property within a pension is not something that you can rule out for any investor, says Claire Trott, head of technical support of Talbot & Muir, although they need to be aware of all the risks.
Investors joining forces to buy a commercial property is a popular way to only use part of the Sipp fund, therefore being able to diversify their investments, she says.
Ms Trott says: “There will definitely be a fund that is too small to invest in a commercial property because of all the fixed fees involved in this type of investment and members should always understand the full extent of the charges that could be applicable to a commercial property investment, not just the headline fees.”