Buying property through a SIPP or SSAS: what is allowed
A pension can buy commercial property and borrow against it. It cannot buy your house, and it cannot do you any favours.
A self-invested personal pension or a small self-administered scheme can hold commercial property directly, and can borrow to help buy it. The rent is paid into the pension, where it grows free of income tax and capital gains tax, and the property can be sold within the pension without a capital gains charge.
This is a genuinely significant advantage for the right asset. It is also a regime with hard edges, and the penalties for breaching the rules are severe enough that they should be understood before the purchase rather than after.
What a pension can and cannot hold
The permitted category is commercial property: shops, offices, industrial units, warehouses, and in some cases land. Residential property is not permitted, and the prohibition is broad enough to catch mixed-use buildings where the residential element is more than incidental.
- Commercial property, including agricultural and some mixed-use where the commercial element dominates
- Borrowing, typically up to 50% of the net scheme assets
- Property let to a third party at a commercial rent, with the rent paid into the scheme
- Property let to a business connected to the scheme member, provided the lease is on commercial terms and at a market rent
The connected-party rules
A pension can let a commercial property to a business owned by the scheme member, which is a common structure for business owners who want to own their trading premises through the pension and pay rent to themselves, into the pension, instead of to a third-party landlord.
The conditions are strict. The lease must be on arm's length commercial terms, the rent must be a genuine market rent, and there must be no benefit conferred on the member outside those terms. Any arrangement that is not at arm's length is a taxable property-related payment, which carries a tax charge of 40% of the value involved plus potential sanctions.
The risks worth weighing
A pension holding a single property is concentrated, illiquid, and cannot be partially sold when the scheme needs cash to pay benefits. If the property is vacant for a period, the scheme has to fund the outgoings from its other assets, and if there are none, from the member.
There is also a borrowing risk. A pension can borrow up to 50% of net assets, but that debt is secured on the property and the scheme has no other income unless the property is let. A void and a loan repayment together can put a scheme under real pressure, and a forced sale in that situation is expensive.
Common questions
- Can I buy a residential property through my SIPP?
- No. Residential property is a prohibited asset for a self-invested pension, and holding it directly triggers significant tax charges. There are structures that give exposure to residential property — for example shares in a property company, or certain funds — but direct residential ownership is not permitted.
- Can I rent my business premises from my own pension?
- Yes, and it is a common arrangement. The lease must be on fully commercial terms, the rent must be a genuine market rent supported by a valuation, and the arrangement must not confer any benefit on you outside those terms. Take professional advice, because a non-arm's-length arrangement attracts a substantial tax charge.