How holding property in a SIPP can cut your business tax

A SIPP is a type of personal pension that gives you far more control over where your pension savings are invested. Unlike standard workplace or personal pensions, which typically limit you to a narrow range of funds, a SIPP allows for a broader array of investments, including commercial property. This is one of the key features that makes it so attractive to many business owners.

In fact, SIPPs and SSAS (Small Self-Administered Schemes) are the only pension types that allow you to hold commercial property directly within the pension. This flexibility opens up opportunities for business owners looking to align their business strategy with their retirement plans.

While SIPPs offer broad investment choices, there are clear rules around what type of property is permitted. In most cases, the property must be commercial, such as an office building, industrial unit, shop, or warehouse. Agricultural land may also be suitable.

Residential property, however, is generally excluded unless it forms part of a mixed-use site and meets very strict conditions. Additionally, the property will usually need to be either freehold or held on a long lease with typically more than 50 years remaining.

One of the things business owners really value about holding property in a SIPP is the tax treatment. It’s not just about saving money, it’s about making the most of what you’ve worked hard to build. From how rent is taxed (or rather, isn’t) to what happens when you sell or pass it on, the benefits can make a real difference over the long term.

Holding your business premises inside your SIPP can also help protect it from trading risks. In simple terms, this means the property is owned by your pension, not your company, so it’s typically out of reach if your business faces financial difficulties, legal claims, or insolvency.

That separation can provide an extra layer of security over a valuable asset.

It also means you can retain the property even if you sell or step back from the business, with the rent continuing to be paid into your pension. For many business owners, it’s a way to bring together business planning and long-term retirement goals, while also supporting succession and intergenerational wealth planning.

There are a few different ways to fund a property purchase through your SIPP. In some cases, you might already have enough in your pension from previous contributions or transfers. If not, you could look at transferring in other pension pots to consolidate your savings into one place.

You can also make new contributions, either personally or through your business. These may qualify for income tax relief (if personal) or corporation tax relief (if made by the business), which can help stretch your investment further.

That said, it’s important to be mindful of the annual allowance. Most people are limited to £60,000 per tax year across all pensions, including employer contributions. If you’ve earned over £260,000, your allowance could be tapered, and exceeding the limit may trigger a tax charge, so it’s worth checking before contributing.

There’s also the option to borrow – SIPPs are allowed to take out loans of up to 50% of the value of the fund. This can offer helpful flexibility, but it does mean introducing debt into your pension, which brings additional risk. You’ll need to consider interest costs, repayment terms, and how borrowing affects your overall investment strategy.

As with all pension-related decisions, it’s a good idea to talk things through with a financial planner. The right advice can help you avoid any unexpected tax issues and make sure the funding structure works for you and your business.

Yes, if you already own a commercial property, personally or via your business, it may be possible to transfer it into your SIPP. This is known as an ‘in specie’ transfer.

However, the process involves several important steps and considerations. The property must be independently valued, and the transaction needs to be at arm’s length.

Depending on your situation, you might incur CGT or Stamp Duty Land Tax (SDLT) when transferring the property, so it’s essential to speak to both your accountant and your financial planner before proceeding.

It’s worth taking a close look at the practicalities of holding commercial property in a SIPP. While the tax benefits are compelling, this kind of investment isn’t without its responsibilities.

First, commercial property isn’t a liquid asset. If you need to access funds quickly from your pension, selling a property can take time. That’s why it’s important to ensure your SIPP maintains enough accessible cash to meet any ongoing costs or pension withdrawals.

You’ll also need to factor in the day-to-day running costs. These might include SIPP provider fees, legal and professional charges, property management, and valuations. They’re not insignificant, and they can affect the overall return on your investment.

And, as with any property investment, there’s no guarantee the value will always go up. That’s why it’s usually best to treat commercial property as one part of a broader, well-diversified retirement plan.

Having a trusted independent financial adviser and accountant by your side can make all the difference. They’ll help ensure everything is structured properly, tax-efficiently, and in line with your wider financial goals.

This approach won’t be right for everyone. But if you’re running a profitable business, already paying rent, and want to build wealth outside the company, it’s definitely worth considering.

Speak to one of our Amber River financial planners and we’ll help you work through the numbers and explore whether this approach fits with your wider goals. We have a network of Chartered financial planners right across the UK, ready to offer truly independent advice. To set up an initial appointment, call 0800 915 0000, or alternatively use our contact form here.

Yes. If your SIPP owns the commercial premises your business uses, your company can pay rent to the SIPP. This rent must be set at a market rate and is a deductible business expense while being tax-free within the pension.

Rental income goes into your SIPP and grows free of income tax. It can be used to fund future pension benefits or reinvested within the scheme.

Employer contributions are subject to the standard £60,000 annual allowance (2024/25). Contributions above this may be possible using carry forward rules, but you should seek financial advice to avoid breaching HMRC limits.

Yes. Your SIPP can borrow up to 50% of its net asset value to help fund a commercial property purchase. However, borrowing introduces risk and must meet strict rules.

Not necessarily. You can combine pensions into a SIPP to build up your fund, and you may also use borrowing. But it’s important to consider costs and diversification – property shouldn’t be your only pension asset.

Yes. SIPPs can co-invest with other SIPPs, SSASs, or individuals, but it must be structured correctly.

It remains in your SIPP and can be passed to beneficiaries, often in a tax-efficient way, though this will depend on your age at death and any upcoming changes to the rules.

You’ll have to cover the usual running costs: SIPP fees, legal charges, valuations, and property management.

Generally, no, unless it’s part of a mixed-use development and meets strict criteria.