How to Buy Property Using Your Pension — A Complete Guide

Introduction

Most people think pensions are just a slow path to retirement income. But if structured correctly, a pension can become a powerful tool for building wealth through property investment—especially for business owners, high earners, or strategic investors.

This guide explains how you can legally use your pension to buy commercial property, through two key structures: SIPPs (Self-Invested Personal Pensions) and SSASs (Small Self-Administered Schemes).

1. Understand the Basics

What You Can’t Do:

You cannot use a regular workplace pension to buy residential property directly.

HMRC heavily penalises residential property investment through pensions unless extremely specific criteria are met (e.g., in a company, for charitable purposes).

What You Can Do:

You can use your pension to buy commercial property, such as:

– Offices
– Shops
– Warehouses
– Land for commercial use
– Mixed-use buildings (only if the commercial portion dominates)

2. Choose the Right Pension Structure

SIPP (Self-Invested Personal Pension)

– Best for individuals.
– Gives you control to choose your investments, including property.
– You can hold multiple assets: shares, bonds, funds, commercial property, cash.
– All property purchased is owned by the SIPP trustee on your behalf.

SSAS (Small Self-Administered Scheme)

– Best for business owners or directors of a limited company.
– Can include up to 11 members (family, business partners).
– You can lend money from the pension to your business (up to 50% of the fund).
– Allows joint property ownership between members or with the business.

3. How It Works: Step-by-Step

Step 1: Transfer Your Pension
Move your existing pension(s) into a SIPP or SSAS.
This is usually tax-free and handled by a regulated provider.

Step 2: Find a Commercial Property
Select a suitable investment (e.g., office building).
Must be wholly or primarily commercial.
You may lease it to a third party or even your own business (at market rates).

Step 3: Get the Property Valued
Independent valuation is required for compliance and purchase approval.
This ensures you’re paying (and reporting) the correct value.

Step 4: Complete the Purchase
Your pension scheme (not you personally) buys the property.
You will work with solicitors, surveyors, and pension trustees.

Step 5: Manage Rental Income
Rent is paid directly to your pension tax-free.
The property must be insured and maintained per pension rules.

4. Borrowing with Your Pension

You can borrow up to 50% of your pension’s value to help fund the purchase.

Example: If your SIPP is worth £200,000, you can borrow £100,000.

The loan must be commercial (not from yourself) and repaid from rental income or future contributions.

5. Key Tax Benefits

Rental Income
Goes into the pension tax-free. No income tax, corporation tax, or dividend tax.

Capital Gains Tax
When the property is sold, there’s no capital gains tax on profit.

Inheritance Tax
Pensions fall outside your estate for IHT purposes. Can be passed to beneficiaries tax-efficiently.

6. Using the Property in Your Business

If you own a business, you can:

– Have your pension buy the premises your business operates from.
– Your business then pays rent to your pension — this is tax-deductible for the business and tax-free for the pension.

This strategy helps move capital from your company to your pension efficiently and legally.

7. Risks and Considerations

– Only commercial property allowed — residential leads to penalties.
– Liquidity — Property is not easy to sell quickly.
– Costs — Setup and admin fees can be high; ensure value justifies cost.
– Regulation — Must comply with pension rules, tax law, and property law.
– Valuations — Regular updates needed for compliance and drawdowns.
– Exit timing — Selling property at retirement may be tricky if not planned.

8. Best Pension Providers for Property Investment

For SIPPs:

– Curtis Banks – Specialist in SIPP property.
– Dentons – Tailored property SIPPs.
– Barnett Waddingham – Excellent support and customisation.
– James Hay Partnership – Flexible and well-established.

For SSAS:

– Whitehall Group – Bespoke SSAS administration.
– Lighthouse SSAS – Great for property and loans to business.
– Talbot & Muir (Besana) – Strong SSAS record and service.
– Sovereign Group – International provider for more complex needs.

9. Who Should Consider This Strategy?

– Business owners with pensions and trading premises.
– Investors with large pension pots seeking to diversify into property.
– Families or business partners planning long-term wealth strategy.
– Anyone who wants more control over their pension investments.

Conclusion

Using your pension to buy property isn’t for everyone, but when done right, it turns your retirement savings into a profitable, tax-efficient real estate investment vehicle. The key is to:

– Use the right pension structure,
– Understand the rules and risks,
– Get professional advice,
– And align the strategy with your long-term goals.