Using a SIPP to buy commercial Property

SIPP property

It can be highly tax-efficient to buy commercial property through a pension fund. This is increasingly popular amongst small business owners who choose to purchase their business premises through their pension scheme to take advantage of the tax breaks that are on offer.

Self-administered pension schemes are used as a way of purchasing a property. There are two types of self-administered schemes:

  • Self-invested personal pension plans (SIPPS) – for individuals
  • Small self-administered schemes (SSAS) – for companies

Individuals have the ability to use SIPPs to choose where their pension savings are invested, rather than leaving the decision to a pension fund manager. SIPPs offer a much wider range of investments to choose from, including investment in commercial property which is not available under a personal pension plan.

Contributions can be paid in by the individual, employer or both which will receive tax relief on top. When property is purchased through the SIPP, it is the trustees who are the legal owner of the property. You may only borrow up to 50% of the value of the property, this can be useful if the pension fund isn’t large enough to cover the full cost.

It’s important to remember that it is not possible to draw from a SIPP personally before the age of 55.

Investing in commercial property through your SIPP offers many advantages that include:

  • Tax relief on contributions paid into your SIPP
  • Exemption from capital gains tax when the property is sold
  • Exemption from income tax on any rental payments
  • Increased cash flow if property is purchased from you or your company
  • The property will form an asset of your SIPP and therefore your creditors will not have access to it
  • On the member’s death there normally won’t be an inheritance tax liability as the property is an asset of the scheme

What Type of Property

A SIPP can own a commercial property outright, but when investing in a residential property, this can only be done as a small part-owner where the property is not for personal use and via a genuinely diverse commercial vehicle, such as a real estate investment trust (REIT). The restrictions on residential property mean that in most cases SIPP property investment is restricted to commercial property.

Permitted investments include business premises, factories, offices, shops etc. As well as hotels, care homes and prisons.

There are times when a commercial property can have a residential element, for example a shop that has a flat above it. As long as no member of the SIPP is living in the flat above the shop it can all be considered as a commercial property.

Case Study

Mr Smith runs a family business with his wife distributing office stationary. The business was initially run from the Smiths family home. Due to expansion the family decided to move the business to its own business premises.

Mr and Mrs Smith both have SIPPs, with their children named as potential beneficiaries on death. Both Mr and Mrs Smith have contributed to their SIPPs personally as well as contributions being made by the company. Mr Smith also makes contributions of £3,600 (gross) into pension schemes for his children. These contributions earn tax relief and as a result represent a tax-efficient investment.

They find a suitable premises for the business and decide to purchase using their pension schemes. The SIPP funds are not sufficient to purchase the property outright, so they borrow 30% of the purchase price.

The property, which is owned by the SIPP, is let to the company for a rent of £3,000 a quarter. The rent is tax deductible in computing the profits of the company, but rather than going to a third party it is divided and paid into the SIPPs (which will benefit the family). The rent is tax-free in the hands of the SIPPs.

The rent paid into the SIPPs helps to build up the value of the SIPPs. This may provide the opportunity for the SIPPs to lend money to the company should it need it in the future. If this route is taken, the interest paid on the loan is paid into the SIPPs, rather than being lost to a third party.

If the SIPPs decide to sell the property, the funds benefit fully from any appreciation in value as there is no capital gains tax to pay on disposal of the property.


The above case study shows buying commercial premises through a SIPP can be a win-win situation. This is partly because of the tax benefits available and partly because any rent paid for commercial property is not lost to a third party. It’s highly advisable that professional advice is sought if contemplating an investment such as this.

If you have any questions or queries on this topic, please feel free to leave a comment or contact us here.

Savvy Financial Planning, Hinton Business Park, Tarrant Hinton, Blandford Forum, Dorset, DT11 8JF