A SIPP can directly purchase commercial property — offices, warehouses, retail units. Residential property is not allowed (extreme penalties apply). The SIPP can borrow up to 50% of its net value to part-fund the purchase. Rent paid by tenants (including your own business) goes into the SIPP tax-free. Property gains inside the SIPP are tax-free. The most common use case: a small business owner buys their company's premises via SIPP, the company pays rent to the SIPP, and the pot grows on rental income + capital appreciation, all tax-free.
What property is allowed
HMRC permits SIPPs to hold:
- Commercial property: offices, retail units, warehouses, industrial premises, hotels, healthcare facilities.
- Mixed-use property — but ONLY the commercial portion is SIPP-eligible. The residential portion (e.g. a flat above a shop) must be excluded or held outside the SIPP.
- Forestry / agricultural land — sometimes, with care.
NOT allowed:
- Residential property (houses, flats, holiday lets) — penalised at 55% tax charge.
- Property used by SIPP member or "connected person" personally (e.g. you can't use the SIPP-owned office as your home office).
- "Tangible moveable assets" worth over £6,000 (art, antiques, fine wine) — same penalty regime.
Lending — up to 50% of net SIPP value
The SIPP can borrow up to 50% of its net value to part-fund a property purchase. Example:
- SIPP pot: £400,000.
- Maximum borrowing: £200,000.
- Total purchase capacity: £600,000 (£400k cash + £200k loan).
The loan is usually a commercial mortgage from a specialist SIPP lender. Interest rates are typically 1–2% above standard commercial mortgage rates. The SIPP — not you personally — is the borrower. Repayments come from the rental income flowing into the SIPP.
The "connected person" trap
You can rent the SIPP-owned property to your own business, but the rent must be at full market value — verified by an independent commercial property valuer. If the rent is too low (subsidising your business), HMRC treats it as an "unauthorised payment" — penalised at 55%.
"Connected person" includes you, your spouse, your relatives, and your business partners. Any rental from a connected party must:
- Be at full market rent (independent valuation).
- Be on standard commercial lease terms.
- Be paid in full, on time, with no informal arrangements.
Tax advantages
Three main tax benefits:
- Rent flows into pension tax-free. Your business deducts the rent as a tax-deductible expense. The SIPP receives it gross (no income tax, no NI, no corporation tax). This is more tax-efficient than your business paying you salary or dividends to fund a separate pension contribution.
- Capital gains tax-free on disposal. When the SIPP eventually sells the property, the gain is inside the pension wrapper — no CGT.
- Outside the IHT estate (until 2027 reform). Pre-2027, SIPP assets pass to beneficiaries tax-free (under 75) or at marginal rate (over 75). Post-2027, this changes — see the IHT-on-pensions reform guide.
Worked example
Small business owner, £500k pension pot, wants to buy £750k office
| SIPP pot | £500,000 |
| Borrowing (50% of net value) | £250,000 |
| Purchase capacity | £750,000 |
| Annual rent (at 5% market rent) | £37,500 |
| SIPP receives rent (tax-free) | £37,500 |
| Mortgage interest (at 7% on £250k) | −£17,500 |
| Net to SIPP per year (before capital growth) | £20,000 |
The business deducts the £37,500 rent as an expense (saving ~£9,375 corporation tax at 25%). The SIPP grows the £20k net annually plus any property appreciation, all tax-free. Over 15 years to retirement at 60, this builds substantial pension wealth from the business's own real-estate spend.
Costs and complications
- Higher SIPP provider fees. Property SIPPs typically cost £1,000–£3,000/year in admin fees vs £100–£500 for a standard investment SIPP.
- SDLT applies. The SIPP pays Stamp Duty Land Tax on the purchase price (commercial rates: 0% to £150k, 2% to £250k, 5% above).
- VAT considerations. If the property is "opted to tax," the SIPP must register for VAT. Adds complexity but allows VAT recovery on the purchase.
- Property management. Tenant management, maintenance, insurance, business rates — all the SIPP's responsibility (usually delegated to a property manager at additional cost).
- Liquidity. Property is illiquid — selling can take 6–12 months. Reduces flexibility for retirement income drawdown.
- Concentration risk. A single £750k property is a large chunk of a £500k pension. Diversification within the SIPP is reduced.
SSAS — the multi-member alternative
A Small Self-Administered Scheme is similar to a SIPP but for company-owned occupational pensions. Multiple business owners (typically family members or partners) can pool funds in one SSAS to buy property. SSAS can also lend up to 50% of its net value to the sponsoring employer — useful for working capital.
For a single business owner, SIPP is usually simpler. For 2–11 directors of an SME, SSAS may be more tax-efficient.
Sources and methodology
SIPP rules follow HMRC's Pensions Tax Manual. For an actual SIPP property purchase, instruct a specialist SIPP provider (AJ Bell, Curtis Banks, Hartley Pensions, Dentons) and a commercial property solicitor. SIPP investment decisions require FCA-regulated advice — see the tax adviser recommendation for the tax-planning side. The methodology page documents sources.
Related pension guides
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