Self Invested Personal Pensions are allowed to borrow money and therefore these can be a suitable tool to buy commercial property with a mortgage.
The rent received from the commercial property does not suffer tax and therefore the mortgage is paid on a standard repayment basis.
Pension funds are able to borrow up to 50% of their current net value.
Therefore as an example:-
Pension Fund £100,000
Maximum Loan £50,000
Purchase Share of Syndicate: £150,000
So on day one the share of the rent for this member may be £9,000, however, the first 7 years of rent will be used to pay down the mortgage.
After 7 years the rent will be paid into the member's SIPP bank account and within HMRC limits may be taken as income from the age of 55.
These figures assume an average annual interest rate of 5.65% on the mortgage and that the rental income is maintained throughout the 7 years.
So a deferred income is achieved after 7 years of 9% per annum from the original investment.
Much better than the 1% achieved from bank deposit accounts.
By visiting this page, I accept that I have read and understood the Terms of Business