Pensions and property have traditionally formed a large proportion of most investors portfolios. Did you know that you can own property inside your pension and benefit from generous tax treatment? This article will help you learn how you can use your pension to buy commercial property.

Using your pension to buy commercial property via SIPP and SSAS

If you’ve been researching how to use your pension to buy commercial property, you’ve likely come across the two different pensions that allow you to do so. A Self-Invested Personal Pension (SIPP) or a Small Self Administered Scheme (SSAS) can buy commercial property, commercial land and that used for agricultural purposes.

This article from Royal London will delve into the nitty gritty of each type of arrangement SSAS versus SIPP – Royal London for advisers

The type of property available

If you are purchasing property via a SIPP or SSAS arrangement, most of them will allow you to choose a wide variety of commercial properties.

These may include:

  • Office space
  • Retail spaces
  • Gyms
  • Hotels
  • Pubs

The advantages of buying commercial property using a SIPP/SSAS

There are a number of key advantages, property can form part of the investment within your pension, giving the prospect for longer term growth within your pension.

If you eventually sell the property later down the line, then you do not pay capital gains tax within the pension arrangement. At current tax rates this could save you 28% on any growth on the property if you are a higher rate tax payer.

The rent that is paid into the pension is not subject to income tax and can be offset against your corporation tax bill.

The commercial property can be purchased with other investors, if you do not have the immediate capital within your pension to buy the property outright yourself you can do this with your business partners etc.

How using your pension to buy a commercial property can benefit you

If you are searching for a company premises to run your business from, you are likely going to have to pay rent, purchase a property within the company or from your post tax income. If you purchase a property using a pension, your pension will then own the property. You will need to pay the pension (i.e. you) market rate rent in order to use the property.

The good news here is that this income payable to the pension is not charged to income tax and you can offset the rent against your corporation tax bill.

Lets say for example, your rent is £1,500 per month, this would result in you paying the pension (that you own) £18,000 per annum in rent. In addition, you can also make annual pension contributions of up to £40,000* via withdrawals from the company each tax year, avoiding corporation tax on the money in a completely legitimate manner. Providing you have sufficient funds, you could withdraw £58,000 from the company each year into your pension, without paying a penny in tax. In addition, the property within the pension should also be benefitting from capital growth – tax free.

*You may be able to contribute more or less depending on your personal situation and so we would recommend you seek advice before making large pension contributions. 

How to start using your pension to invest in commercial property

If you have been looking for a commercial premises, you are likely aware of how expensive they have become nowadays and you may not have the money available to do this just yet. What you can be doing in the meantime though, is contributing to your pension and building up a fund large enough to purchase the property within the pension. If you have any previous pension plans lying around then you can also transfer these into your pension and use the proceeds to purchase the property.

We would strongly advise that if you are going to use your pension to buy commercial property you seek advice from both your accountant and financial adviser in tandem. We have set up several arrangements for business owners across the country and can help you make the right decisions for you and your business.

If you would like to discuss any of the above with a local independent financial adviser in Rayleigh, then please get in touch. Not local? We’re always happy to meet for a cuppa via video conferencing.

T: 01268 944122


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