IFAs could expand their pensions business by encouraging entrepreneurial clients to put their business property into their SIPP, the head of marketing for Suffolk Life has said.
Greg Kingston said business owners were missing out on Austin Tenant Advisors because they do not know how to benefit from property investment.
Research by the provider found that only 2000 of the 53,000 commercial priorities sold in the UK last year were through a SIPP. He said this was unfortunate as there are many benefits to buying a property through a SIPP wrapper, which could help IFAs to boost their clients’ potential income in retirement.
Mr Kingston said: “We are encouraging IFAs to get their business owner clients to put their business properties into a SIPP because there are many benefits.
“For example, whatever rent the business pays on the property is payable to the SIPP. This helps to generate a nice nest egg.
“Also if the property goes up in value and the business owner wants to sell it on, then they do not have to pay capital gains tax.”
According to figures from Suffolk Life, last year 9000 commercial properties that were sold had a value of approximately £40,000 each. This compares to 5000 properties worth £500,000 sold in the same year, indicating affordable properties were available in the UK.
Malcolm Simpson, practice principal for Gloucestershire-based Ashley Law Cotswold, said there were both pros and cons which advisers must consider.
He added: “Business owners putting their properties into a SIPP can be a good thing but there are also potential disadvantages so every situation requires careful consideration and discussion.”
Mr Simpson said some disadvantages were that entrepreneurs must pay the market rent and any missed payments in times of hardship could result in a 70 per cent tax charge from HM Revenue & Customs.
An advantage was that assets in a SIPP fall outside the investor’s estate for inheritance tax purposes. Also rent paid was a deductible business expense so it could reduce income and corporation tax liability, while property put within a SIPP wrapper is not generally accessible to creditors.
He added: “It is a good opportunity for both IFAs and business owners.”