Getting A Commercial Mortgage For SIPP

Using Your SIPP to Buy Commercial Property with a Mortgage

Getting a commercial mortgage for a SIPP can be a wise long term move. You use pension funds to buy a property. You potentially create rent income for your retirement. You might even give your business a stable home.

Yet it is not a standard purchase. The buyer is not you, the owner is your pension and the rules are strict. The lender underwrites these cases differently.

What does getting a commercial mortgage for SIPP mean

A SIPP is a pension that lets you choose and manage your investments. Commercial property can be one of those investments.

When you buy property through a SIPP, the SIPP trustees hold the legal title. That means:

• You do not personally own the building
• Your pension scheme owns it
• All income and gains sit inside the pension wrapper

If you take borrowing, the mortgage is in the name of the SIPP trustees. The property is the security.

This structure is why lenders and trustees take such care. One mis step can create tax problems, delays, or a failed purchase.

Why you might use a SIPP to buy commercial property

People usually explore this route for three reasons.

You want tax efficient rent and growth inside the pension

Rental income received by the pension can be tax efficient within the pension structure. Capital growth may also be sheltered within the pension. Tax rules can change, so you should take specialist tax advice, but the potential appeal is clear.

You want your business to pay rent into your pension

If your business occupies the property, it pays rent to the pension at a market rate. That rent becomes pension income, rather than rent to a third party landlord. Your business may also treat the rent as a business cost, which can support its tax position.

You want control and stability for your premises

If you rent today, you face lease renewals, rent reviews, and uncertainty. Owning via the pension can give you longer term control, as long as you stick to the rules and keep things commercial.

What types of property can your SIPP buy

A SIPP can usually buy commercial property such as:

• Offices
• Warehouses
• Retail units
• Industrial units
• Pubs
• Agricultural land

Residential property is generally not allowed. Some properties have limited residential elements, such as a caretaker flat, but the rules can be tight and lender appetite can vary.

If you are unsure whether a property qualifies, you should check early. This is one of the biggest time savers in the process.

How much can you borrow with a SIPP commercial mortgage

Borrowing through a SIPP is typically capped at up to 50 percent of the net value of the pension fund. In practice, lenders may also apply their own loan to value limits based on the property, the tenant, and the risk profile.

This creates an important point that catches people out.

Your borrowing limit is driven by the pension fund value, not just the property value.

Here is a simple example.

If your SIPP is worth 400,000, maximum borrowing might be 200,000. That gives you a budget of 600,000 plus costs, assuming you keep enough cash back for fees and running costs.

Because costs can be significant, you should plan your cash buffer carefully. A SIPP property purchase tends to involve:

• Valuation fees
• Legal fees
• Trustee and administration charges
• Potential stamp duty costs
• Mortgage arrangement fees
• Ongoing property costs

What lenders look at when you apply

Getting a commercial mortgage for SIPP is not only about your pension value. Lenders and trustees want to see a deal that stands up on its own, when looking at the full picture, to ensure they will continue to be paid.

The tenant and the rent

If your business will rent the property, lenders look at trading strength and stability. They often ask for accounts, sometimes over multiple years. They also want the rent to cover the mortgage payments comfortably.

If the tenant is a third party, lenders assess the lease and the tenant covenant. A weak tenant can reduce appetite, even if the property looks great.

The lease must be formal and market based

Even if your own company rents the property, you still need a proper commercial lease. The rent should be at market value. A qualified valuer may be required, especially for connected party situations.

This is not optional. The commercial nature of the arrangement protects your pension and helps maintain compliance.

The property itself

The lender will value the property and review its suitability as security. Some sectors are harder than others. Some properties have special risks, such as short leases, heavy refurbishment needs, or niche use.

The exit plan and affordability

Commercial lending is about repayment strategy. The lender wants to see how the loan will be repaid. In many cases, rental income supports the monthly payments, and the pension holds the asset long term.

The step by step process

Step 1: Check your SIPP provider rules

Not every SIPP allows direct property ownership, and some have stricter criteria than others. You want to confirm that:

• Your provider supports commercial property
• You understand their fees and timescales
• They are comfortable with the chosen property type

You should speak with a pension adviser that can make sure you are eligible for this and it aligns with your long term plans.

Step 2: Confirm the funding plan

You need to map out:

• Your available pension funds
• Your borrowing headroom
• Your purchase costs and cash buffer
• Any additional pension contributions or transfers

Step 3: Agree heads of terms and lease structure

If your business will occupy the property, you need lease terms that meet commercial expectations. If a third party tenant is involved, you need to assess lease length, rent review terms, and break clauses.

Step 4: Apply for the mortgage

The lender reviews the case, requests documents, and arranges valuation. You should expect questions and requests for evidence. A specialist broker helps you look for lenders that can work alongside you.

Step 5: Legal work and trustee sign off

Your solicitor and the SIPP trustees handle key steps. The trustees must be satisfied that the purchase meets their requirements. The mortgage lender will also need legal confirmation and security documentation.

Step 6: Completion and ongoing management

Once the property completes, rent flows into the pension, and the mortgage runs as agreed. You will also need to manage:

• Insurance requirements
• Maintenance and repairs
• Rent collection and reviews
• Ongoing valuations in specific situations

VAT and other costs you can expect

VAT can occur for commercial property. Some commercial properties are opted to tax, which means VAT may apply on purchase and rent. In certain situations, the pension may be able to reclaim VAT, but the setup must be correct.

You should also plan for liquidity. Property is not a quick sell asset. Your pension money can be tied up for years, and you still need cash in the SIPP for fees and property costs. Make sure you are working with the correct tax professionals to plan for this carefully.

Questions people often ask

Can you live in a property owned by your SIPP

No. You cannot live in it or use it personally. That would breach the rules and can create serious tax consequences.

Can your SIPP buy a mixed use property

Sometimes, but it depends on the residential element of the mixed-use property, the provider and lender rules. You should check the specific property details early.

Do you need a deposit for a SIPP commercial mortgage

You need sufficient pension funds, plus borrowing within the limits. The deposit effectively comes from the SIPP cash, not your personal bank account, unless you add money into the pension in line with pension rules.

Can you buy with other people

You may be able to pool funds with others, depending on structure and provider rules. Ownership is recorded in percentage terms and each party receives their share of income.

Conclusion

Getting a commercial mortgage for SIPP can be an effective way to buy commercial property, build long term pension value, and create a rent stream that supports your retirement planning.

It can also give your business stability, with rent paid into your pension rather than to a third party landlord.

You do need to respect the structure. Your pension owns the property, not you. Borrowing is often capped at 50 percent of the net fund value. The lease must be formal and market based. You must plan for fees, VAT issues, and long term liquidity.

If you are considering a SIPP commercial mortgage, speak to Kerr & Watson and we can introduce you to lenders that will explore your plans further.