Commercial Property in a SIPP: What HMRC Allows
Written by Scott Jones, founder of CommercialPropertyKiln · Last updated
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Holding commercial property in a self-invested personal pension (SIPP) can be one of the most tax-efficient ways for a business owner to own their premises. Here is what is allowed and what is forbidden.
Why do it
Commercial property held in a SIPP grows in a tax-privileged wrapper: rental income paid into the scheme is free of income tax, and a disposal is free of capital gains tax. A common use is a business owner whose own company rents its premises from their pension, so the rent builds the pension rather than a landlord's wealth.
What a SIPP can hold
SIPPs can hold genuine commercial property: offices, shops, warehouses, industrial units, and some other classes such as pubs. The property must be a genuine investment held on arm's length terms.
What is forbidden
Residential property is treated as taxable property and triggers punitive tax charges if held directly by a SIPP, so it is effectively off limits (with narrow exceptions). Tangible moveable property is similarly caught. Mixed-use buildings need care, and sometimes splitting the title so only the commercial part is in the pension.
The important rules
Purchases from a connected party must be at arm's length and market value, the SIPP can borrow up to 50% of its net value, and from 2027 pensions face an inheritance tax change. A SSAS is an alternative with a loanback, multiple pensions can hold a property jointly, and there are specific rules on death benefits. This is regulated financial territory: this is general guidance, and you should take advice from a regulated adviser and your SIPP provider before acting.
SIPP vs company: how they compare
Many business owners weigh holding their premises in a SIPP against a limited company. The main trade-offs:
- Tax on rent. In a SIPP the rent is tax-free and grows the pension. In a company it is taxed at corporation tax rates of 19% to 25%.
- Tax on sale. A SIPP pays no CGT on a disposal within the pension. A company pays corporation tax on the gain.
- Getting the money out. SIPP funds are taxed as pension income and can only be drawn from age 55 (57 from April 2028). Company profit is taxed again as salary or dividends when you take it out.
- How much you can put in. SIPP contributions are capped by the annual allowance (60,000, tapered for high earners) and your relevant earnings. A company has no contribution cap, but funding comes from taxed profit or borrowing.
- Borrowing. A SIPP can borrow up to 50% of its net value. A company can take a commercial mortgage, usually at a higher loan-to-value.
- Residential property. A SIPP cannot hold it. A company can.
- On death. A SIPP sits outside your estate for inheritance tax until April 2027, then within it. Company shares form part of your estate.
- Access to the cash. SIPP funds are locked until pension age. Company funds are available to the business at any time.
Whichever structure holds the property, if your own trading company pays the rent then that rent is a deductible expense for the trading company, reducing its corporation tax. That deduction is often a bigger planning point than the tax treatment of the rent received.
In short, a SIPP is usually the more tax-efficient home for premises you plan to hold long term and do not need the capital from, while a company gives flexibility, no contribution cap and the option to hold residential too. Model both against your own numbers, and see personal vs company vs pension.
Can a SIPP hold commercial property?
Yes. A SIPP can hold genuine commercial property such as offices, shops and warehouses, with rent received tax-free in the scheme and no CGT on disposal within it.
Can a SIPP hold residential property?
No. Residential property is treated as taxable property and triggers punitive charges if held directly by a SIPP, so it is effectively off limits.
Is it better to hold commercial property in a company or a SIPP?
It depends on your plans. A SIPP wins on tax: rent and gains grow tax-free, but the money is locked in until pension age and contributions are capped by the annual allowance. A company gives flexibility and no contribution cap, but pays corporation tax on rent and gains and taxes the profit again when you extract it. A SIPP suits long-term premises you do not need the capital from; a company suits landlords who want access to the cash or who also hold residential.