Buying Commercial Property through your Pension Scheme

It can be very tax efficient to purchase a commercial property through a Self-Invested Pension Plan (SIPP). A SIPP is a type of pension which is available to anyone and offers a wide range of investments.


Your company can make a cash contribution into your pension scheme and claim corporation tax relief on this contribution. The pension scheme then uses the cash to buy the commercial property. The company pays rent to the pension scheme at market rate. The rent is tax deductible in the company and the pension scheme does not pay tax on the rental income. In addition, any capital growth in value of the property is tax free within the pension scheme. However, when you start to draw from the pension, 75% will be taxed at your marginal rate of income tax.



A SIPP pension scheme typically sits outside your estate for Inheritance Tax (IHT) purposes and so the assets within the SIPP would not be part of your Estate and subject to IHT when you die. In certain circumstances, if you die before you are 75, the pension scheme can also be accessed by your beneficiaries free of tax. You should talk to a financial adviser about ​structuring the SIPP in this IHT efficient way.


The pension scheme cannot hold residential property so if part of the building you wish to purchase is residential, it will have to be purchased by the company or by the individual personally. Your solicitor will have to consider how to manage this and whether the title deeds need to be split. Each transaction needs to be carried out at fair market value.


Some points to consider are:


The Pension Annual Allowance

This is the maximum contribution that you/your company can make into a pension scheme per year. The current allowance is £40,000 and personal tax charges arise if you exceed the allowance.


Previous Years Unused Annual Allowance

You can also use Annual Allowance not used in the previous 3 years. Your Financial Adviser will carefully consider the Annual Allowance limits carefully before the contribution is made to ensure you don’t exceed the allowance.


Corporation Tax Relief on the Initial Pension Contributions

The company will be able to claim corporation tax relief on the pension scheme contributions providing that the contribution is made wholly and exclusively for the trade. Additional rules are relevant for the corporation tax relief if the contributions exceed £500,000.


Corporation Tax Relief on the rent payments to the pension scheme

The company will also be able to claim corporation tax relief on the rent paid to the pension scheme. The rent must be paid at market rate.


SIPP Protection

If you or your company are forced to file for bankruptcy, the value of your SIPP and the property held within the SIPP will not be accessible to creditors.


There are also potential disadvantages of purchasing a commercial property in a SIPP. There will be additional fees associated with a property purchase within a SIPP and if your company rents the commercial property and goes under, it will have an adverse effect on your SIPP. There is also a lack of diversity within the SIPP, as most of the money will be tied up in the property, and careful planning will be needed when it comes to accessing funds from the SIPP.


Please note that this is general guidance only and not advice. If you need financial advice please contact us on 01635 800820.


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