Buying a Holiday Let with a SIPP

Whether you’re close to retirement age or consider it to be light-years away, you should be thinking about pensions as soon as you start working. If you’re savvy with finances and investments, a self-invested personal pension (SIPP) could be ideal for you, allowing you much more control over how you manage your investments.

Although there is a wide range of investment options, there are strict rules around SIPPs, especially when it comes to property ownership. While it is technically possible to purchase a holiday let with your SIPP, it’s a complicated area of finance and something you’ll likely need to speak with a financial advisor about.

Luckily, we’ve put together some information about SIPP property ownership to get you started! 

Can you use your SIPP to buy a property?

In short, no! You cannot use your SIPP to buy a residential property directly, only to invest in commercial properties. SIPP commercial property rules allow you to invest in buildings which are used as functioning hotels, restaurants, shops and so on. So, it’s likely that your next question will be…

Can you purchase a holiday let with a SIPP?

This is where things get complicated! Even though you might not view a holiday let as a ‘residential property’, because you aren’t living in it full time and are running it as a commercial property, holiday lets are still regarded as such under the SIPP rules, because they are suitable for people to live in.

That being said, there are ways in which you can use your SIPP to help with your holiday property investment…

How do you buy a holiday let with your SIPP?

You cannot invest directly in residential property with your SIPP. However, if you want to use your SIPP for holiday property investment, there are two options. Firstly, you have the opportunity to withdraw the funds from your pension pot and use these to form your holiday let mortgage deposit or buy your holiday let, depending on the amount you have in your SIPP. The one drawback is that to take money out of your SIPP, you must be 55 years old.

The second SIPP property option is more tenuous but provides a legitimate way to invest your money while abiding to HMRC rules; it is possible to invest in companies which own holiday let properties. As you won’t own the holiday let property outright, you won’t be violating the conditions of your SIPP.

A note: tax implications

If you were to use your SIPP to invest directly in what HMRC judges to be a residential property, you would face a huge tax bill of roughly 55%. While this could be seen as a solution to buy a holiday let with your SIPP, it probably wouldn’t be worth it once you’ve paid up!

Can you buy a holiday let property at auction with a SIPP?

While you could buy a residential property at auction, the same SIPP property rules apply: if you buy the property directly, you will end up with a steep tax bill.

Reasons not to use your SIPP for property

As we’ve spoken about in this article, the rules surrounding SIPP property ownership are extremely strict – not to mention confusing – which might well be a reason not to go down this route! Plus, if you were to invest your SIPP directly in a residential property (which holiday let properties are regarded as, in the HMRC’s eyes), you will be penalised with a hefty tax bill.

If you are still interested in SIPP property investment options, we’d advise speaking to an expert who can explain your options in greater detail and most importantly, prevent you from making a bad investment!