Buying commercial property within a pension
For many business owners, pensions are more than a retirement pot, they can be a strategic investment tool. Two options that offer greater control and flexibility are Self-Invested Personal Pensions (SIPPs) and Small Self-Administered Schemes (SSAS).
These pension types allow you to go beyond traditional investments and take advantage of opportunities that align with your business goals. Aside of the corporation tax saving of making pensions contributions, what makes a SIPP or SSAS appealing is the ability to:
- Buy commercial property with your pension
- Receive rental income which acts as a return on your investment
- Benefit from tax‑free growth on property value and rental income
- Reduce corporation tax when your business pays rent to the pension
This approach can help you build wealth while keeping assets in a tax‑efficient environment. However, outcomes depend on market conditions, growth is not guaranteed, and pension investments can fall as well as rise.
Why consider commercial property in your pension?
Business owners and high-net-worth individuals are increasingly turning to these pensions for their wider investment choices and tax advantages – including relief on contributions and tax-free growth, as well as business planning opportunities. However, careful planning is required to ensure benefits are maximised and tax liabilities are managed efficiently. This advice is subject to personal circumstance and objectives.
Benefits of buying commercial property through a pension
SIPP or SSAS can provide the option to purchase commercial property within the pension. This means that:
- Rents paid boost your retirement savings.
- Property growth is tax-free inside the pension.
- Rent is usually deductible for corporation tax purposes.
It’s a strategy that combines business planning with long-term wealth building. However, it’s not without its complexities, and there are important factors to weigh up before making the move.
Key considerations
- Liquidity: If you’re in need of accessible cash, using your SIPP or SSAS to buy property can tie up that capital. Commercial property may be difficult to sell, particularly in stressed market conditions
- Borrowing rules: While these pensions can borrow to help fund property purchases, there are strict rules and limits do apply to this approach. SIPP/SSAS rules are complex; unsuitable structuring may create tax charges.
- Costs: Be prepared for valuation, legal and ongoing management fees from this setup.
- Future tax changes to consider: From April 2027, unused pension funds may face inheritance tax, so nomination forms and drawdown planning are essential. As a reminder, from 6th April 2027 inheritance tax may be paid at 40% on any unused pension funds, that exceed your Nil-Rate Band. Where nomination forms aren’t completed, this could risk the pension income being paid to your beneficiaries also with the payment of income tax. Effective tax rates can reach (or exceed) 67% in certain circumstances.
- Business relief: It’s important to consider the impact of Business Relief and its loss if your business sells a commercial property to your pension.
We’re here to help
Our team can guide you through evaluating whether a SIPP or SSAS suits your needs, structuring property purchases within your pension, managing liquidity and borrowing considerations, and planning for future tax changes.
Get in touch with our specialist team by filling in the form below.
Risk warnings:
- Property values can fall as well as rise.
- Rental income is not guaranteed; void periods may occur.
- Property is illiquid and may delay retirement withdrawals.
- Borrowing increases risk and cost.
- SIPP/SSAS investments are subject to regulatory and tax change risk.
