Investors previously discouraged from investing commercial property into a Self Invested Personal Pension (SIPP) may wish to reconsider following the Government’s recent announcement on pensions, which, if it becomes law, will remove the need to buy an annuity at age 75 and introduce flexible drawdown, allowing individuals to draw down unlimited amounts from their pension funds, provided that they satisfy a minimum income requirement, says Adams & Remers LLP.

The Government’s announcement now removes the need to buy a pension annuity at age 75, which for anyone with commercial property invested in a SIPP previously meant the property would have had to be sold before the annuity could be purchased. In the current market this may have been very difficult unless the property price was significantly reduced.

David Platt, partner at Adams & Remers comments: “This is good news for those with sufficient pension funds to invest in commercial property and there are certainly some well priced opportunities for those with the cash or funding in place. This has to be balanced against the possible constraints on the future growth of commercial property values and income voids on rent whilst the economy is struggling out of the recession. Withdrawing the need to sell property in order to buy an annuity gives a certain amount of flexibility to some investors.

David continues: “There is one sting in the tail of the Government’s announcement. Under current legislation, if a person dies before age 75 having drawn down income (albeit at a capped rate) under an unsecured pension arrangement, any funds not drawn down can be paid out as a lump sum, taxed at 35%. However, the Government now proposes that, in those circumstances, any unused funds on death will be taxed at a higher rate of 55%. This will be unwelcome for pensioners wanting to pass on their unspent pension funds to their next of kin.”

David concludes: “The real benefits of flexible drawdown for anyone with a pension will be felt by those with a larger pension pot as investors will initially need to demonstrate to HMRC that they have sufficient pension income for life without having to rely on a state pension at a later date. Most pension funds are currently insufficiently large to benefit from flexible drawdown.”

For further information contact David Platt at Adams & Remers.