Can your pension buy
your business premises?

A pension can be a landlord. Often the best one you will have.

A great many business owners pay rent every month to a landlord who is not them, when they could be paying it to their own pension instead. Buying your trading premises through a SIPP or SSAS turns that rent from a cost into retirement savings. It is a well-established structure, used widely and entirely legitimately. But it works only inside a set of fairly precise rules, and almost every one of them comes back to a single thing: an independent, defensible valuation.

This article sets out what a pension can and cannot buy, how the connected-party rules bite when you are on both sides of the deal, and where the valuation does its work. It is general information rather than advice on any particular scheme, and the tax treatment of pensions is detailed, so the structuring belongs with your scheme administrator and tax adviser. My part is the valuation.

Yes, and here is why owners do it.

A self-invested personal pension (SIPP) or a small self-administered scheme (SSAS) can buy commercial property, including the premises your own company trades from, and let it back to the business. Both are registered pension schemes under the Finance Act 2004, and within that regime commercial property is a permitted investment. The pension becomes the landlord; your company becomes the tenant; and the rent funds your retirement instead of someone else’s.

The reason the structure is so widely used is that the tax works in the owner’s favour at almost every stage.

1. 01

   The rent is deductible, then tax-free.

   Rent paid by the trading company is an allowable expense for the company, and it is received by the pension free of income tax. Money moves from the business into a sheltered environment, efficiently.

2. 02

   Growth and sale are free of CGT.

   A registered pension scheme pays no capital gains tax. The property can grow in value inside the scheme, and on an eventual sale the gain is not taxed, which is rarely true of property held personally or in a company.

3. 03

   The asset is ring-fenced.

   Property held in the pension generally sits outside the trading company, so it is broadly insulated if the business runs into difficulty, while the business keeps the premises it needs to trade.

4. 04

   It funds a retirement, quietly.

   Over a long lease the rent compounds inside the scheme. For an owner who was always going to occupy the premises anyway, the structure converts an unavoidable cost into a pension.

None of that is exotic, and none of it is aggressive. It is simply the intended use of the rules. What turns it from a good idea into a compliant one is getting the figures right, because the moment a member and their pension transact with each other, HMRC is entitled to ask whether the deal was done at arm’s length.

— The whole point in one line A pension that owns property lives or dies by one number. It is worth getting that number right.

Commercial yes, residential no.

The first rule is about what the scheme is allowed to own. Commercial property is fine: offices, shops, industrial and warehouse units, trade counters, surgeries, the freehold of owner-occupied business premises. Residential property is a different matter. Under Schedule 29A of the Finance Act 2004, residential property and tangible moveable property are ‘taxable property’ when held by an investment-regulated scheme such as a SIPP or SSAS.

Acquiring taxable property does not just fail to work; it is actively penalised. It triggers an unauthorised payment charge on the member and a scheme sanction charge on the scheme, which between them make holding residential property through a pension prohibitively expensive. There are narrow exceptions, for instance accommodation that is genuinely ancillary to a commercial use, or held through certain genuinely diverse commercial vehicles, but they are exceptions. The working assumption for a SIPP or SSAS is commercial only.

Mixed-use property is where this needs the most care. A shop with a flat above it contains a residential element that can taint the whole acquisition if it is not handled correctly. Whether a given property is wholly commercial, and how any mixed element is treated, is a question to settle before exchange, not after, and it is one where the valuation and the tax advice have to line up.

Buying from yourself.

When the scheme buys the premises from you or your company, you sit on both sides of the table. That is a connected-party transaction, and HMRC’s concern is obvious: nothing inherently stops a member directing their scheme to overpay, shifting value out of a taxed environment and into a sheltered one. The protection against that is straightforward. The price has to be the property’s open market value, set by an independent RICS Registered Valuer rather than by the people who benefit from the deal.

Pay more than market value and the excess is an unauthorised payment under the Finance Act 2004 (ss.208–209), charged at 40% with a possible further 15% surcharge. So the valuation is not paperwork that follows the decision; it is the thing that keeps the purchase authorised in the first place. I prepare a Red Book Market Value opinion for precisely this purpose, evidenced and reasoned so that it answers the question HMRC would ask before HMRC asks it.

Letting it back: the rent has to be right.

Once the scheme owns the property and lets it to your company, the rent is also a connected-party figure, and it too has to be at full open market value. The exposure runs in both directions. Set the rent too low and HMRC can treat the shortfall as a contribution to the scheme, with its own consequences for allowances. Set it too high and the excess is an unauthorised payment. The only safe figure is the market figure, independently evidenced.

And because the property is normally revalued at least every three years, on the triennial cycle, with the rent reviewed alongside it, this is not a one-off exercise. It is an ongoing discipline that has to stay consistent review to review. The capital valuation and the open market rent are two sides of the same instruction, which is why I report both, and why a connected-party letting is, in substance, a rent review that has to withstand the same scrutiny as any other.

Property you already own.

You do not have to buy a property the scheme does not yet hold. If your business already owns its premises, the property itself can be moved into the pension as an in-specie contribution, a contribution made in kind rather than in cash. It is valued at market value, and that figure does double duty: it fixes the amount transferred and it drives the tax relief, because the contribution counts against the annual allowance at its value.

The same need for an independent figure arises whenever property changes hands in a pension context: on transfers between schemes, on pension sharing following divorce, and on a member leaving or a scheme winding up. Each leg needs a valuation as at the relevant date. There is also stamp duty land tax to consider, since moving the property is a land transaction and SDLT can be due on the consideration or on any debt assumed. That is a matter for the conveyancer, but it begins, like everything else here, from the valuation.

Borrowing, SDLT and the moving parts.

A scheme does not always have the cash to buy outright, and it does not have to. It can borrow to help fund a purchase, up to 50% of the scheme’s net asset value under the Finance Act 2004 borrowing limit. A SSAS with £400,000 of net assets can borrow up to a further £200,000, taking its buying power to £600,000. The lender will want its own comfort on value, and in practice the figure the scheme relies on is the figure the lender relies on too.

SDLT applies to the purchase exactly as it would to any commercial land transaction. None of these are the valuer’s decisions to make, but each of them rests on the valuation: the price, the loan-to-value, the duty, the relief. Get the figure right and defensible at the outset and the moving parts downstream tend to fall into place. Get it wrong and every one of them inherits the problem.

Where the valuer fits, and a note for advisers.

In practice I am instructed by the scheme administrator, by the member’s accountant or financial adviser, or by the member directly, and I work alongside whoever is running the transaction. What I provide is the independent part: the Market Value, and where the property is let, the open market rent, prepared to the RICS Red Book by a Registered Valuer who is neither the member nor their adviser. That independence is the entire point. It is what lets a trustee, an administrator, a lender and HMRC all rely on the same number.

For advisers, the practical message is to instruct the valuation early. The figure shapes the price, the borrowing, the SDLT and the relief, so it is far better settled before heads of terms than argued afterwards. And if a property is mixed-use, part-let, or otherwise unusual, flag it at the outset, because those are the instructions where the basis needs thought and where a figure produced in a hurry is hardest to defend. A pension that owns property is a good structure. It just has to be built on a number that holds.

If you are weighing up a purchase, a triennial review or an in-specie transfer, the SIPP and SSAS valuation service page sets out how I approach each, and I am happy to talk a matter through with you or your adviser before any formal instruction.