SIPP & SSAS Commercial Mortgages

Using a SIPP or SSAS to Buy Commercial Property: Mortgage Options, Benefits & Rules

Many business owners are surprised to learn that their pension can be used to buy commercial property.

A Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS) can purchase commercial premises directly, including properties occupied by your own business. Where pension funds alone are insufficient, a commercial mortgage can often be used to bridge the gap.

This can be a highly tax-efficient way to acquire business premises while simultaneously building retirement wealth.

What Is a SIPP Commercial Mortgage?

A SIPP commercial mortgage allows a Self-Invested Personal Pension to borrow money to help purchase commercial property.

The property becomes an asset of the pension scheme rather than being owned personally or by the business itself.

The pension receives any rental income generated by the property, and any growth in the property’s value remains within the pension environment.

Many business owners use SIPPs to purchase the premises from which their company trades. Rather than paying rent to a third-party landlord, the business pays rent into the pension scheme.

Over time, this can help build pension wealth while giving greater control over business premises.

What Is a SSAS Commercial Mortgage?

A Small Self-Administered Scheme (SSAS) is an occupational pension scheme commonly established by company directors and business owners.

Like a SIPP, a SSAS can purchase commercial property and obtain commercial mortgage finance.

A SSAS often provides greater flexibility than a SIPP in certain areas, particularly for business owners. One notable feature is that a SSAS can, subject to HMRC rules, lend money back to the sponsoring employer under specific conditions.

This additional flexibility is one reason why SSAS arrangements are popular among established business owners and family-run businesses.

How Does a SIPP or SSAS Commercial Mortgage Work?

The process is relatively straightforward.

1. Existing pensions are transferred into a SIPP or SSAS.
2. The pension scheme identifies a suitable commercial property.
3. The pension scheme contributes available funds.
4. A commercial mortgage is arranged if additional funding is required.
5. The pension trustees purchase the property.
6. Rent is paid into the pension if the property is occupied by a tenant or connected business.
7. The mortgage is repaid from pension funds and rental income.

Once the mortgage has been repaid, the pension owns the property outright.

How Much Can a SIPP or SSAS Borrow?

One of the most important rules involves the HMRC borrowing limit.

A SIPP or SSAS can typically borrow up to 50% of the net value of the pension scheme’s assets at the time borrowing takes place.

For example:

• Pension fund value: £500,000
• Maximum borrowing: £250,000
• Total purchasing power: £750,000 plus acquisition costs

Existing borrowing must also be taken into account when calculating borrowing capacity.

Lenders will then assess the transaction in the same way as many other commercial mortgage applications, considering factors such as rental income, tenant quality, property type and overall affordability.

What Types of Commercial Property Can Be Purchased?

Many commercial property types can be purchased through a SIPP or SSAS.

Examples include:

• Offices
• Industrial units
• Warehouses
• Retail shops
• Professional practices
• Medical centres
• Veterinary surgeries
• Dental practices
• Agricultural land
• Hotels
• Public houses
• Factories
• Commercial investment property

Pure residential property is generally prohibited within a SIPP or SSAS because it can trigger substantial tax penalties. Mixed-use properties may be possible in certain circumstances but require specialist advice.

Can My Business Rent the Property From My Pension?

This is one of the most common reasons business owners use SIPP and SSAS commercial mortgages.

The pension scheme purchases the premises and leases it back to the trading business.

The company pays market rent to the pension scheme, creating several potential advantages:

• Rental payments are generally deductible business expenses.
• Rental income is received by the pension scheme.
• The property is retained within the pension environment.
• The business gains greater security over its premises.

The lease must normally be established on commercial terms and supported by an independent market valuation.

Tax Advantages of SIPP & SSAS Commercial Property Ownership

Many investors are attracted by the potential tax efficiencies.

Benefits can include:

Tax-Free Rental Income

Rental income received by the pension scheme is generally exempt from income tax.

Capital Gains Tax Advantages

Any growth in the property’s value can usually be realised without Capital Gains Tax within the pension structure.

Corporation Tax Efficiency

Where a trading company rents the property from the pension the rental payments can often be treated as a business expense.

Estate Planning Benefits

Pension assets can provide inheritance tax planning advantages, although pension taxation rules can change and advice should always be sought.

SIPP vs SSAS: Which Is Better?

Neither is automatically better.

The most suitable option depends on your objectives.

SIPP Advantages

• Simpler administration
• Wide range of providers
• Professional trustees manage compliance
• Suitable for individuals

SSAS Advantages

• Greater flexibility
• Potential ability to lend to sponsoring employers
• Multiple members can participate
• Popular among family businesses and company directors

Many owner-managed businesses favour SSAS arrangements because of the additional flexibility available.

Joint Purchases and Pension Pooling

One area often overlooked by business owners is the ability to combine pension funds.

A commercial property purchase can be funded using:

• Multiple SIPPs
• Multiple SSAS members
• Joint ownership with other investors
• Pension funds plus borrowing

This can significantly increase purchasing power and create opportunities that may not be possible using a single pension alone.

Frequently Asked Questions

Can a SIPP get a commercial mortgage?

A SIPP can borrow up to 50% of its net asset value, subject to lender and trustee approval.

Can a SSAS buy commercial property?

A SSAS can purchase commercial property directly and can also use borrowing to increase purchasing power.

Can I buy my business premises through my pension?

In many cases, yes. This is one of the most common uses of both SIPPs and SSASs.

Can my company rent a property owned by my pension?

Yes, provided the lease and rent are established on normal commercial terms.

Can multiple people combine pensions to buy a property?

SIPPs and SSASs can often be combined with other pension members or investors to purchase larger commercial properties.

Can a SIPP or SSAS buy a property with a flat above it?

Possibly, but mixed-use properties require specialist consideration because residential elements can create pension tax issues.

Conclusion

SIPP and SSAS commercial mortgages can provide a powerful way for business owners, directors and professionals to acquire commercial property while building long-term retirement wealth.

By combining pension funds with commercial mortgage finance, it may be possible to purchase trading premises, investment property or commercial assets in a highly tax-efficient manner. The ability to receive rental income within the pension, benefit from potential tax advantages and retain control over business premises makes these arrangements particularly attractive to many business owners.

However, pension rules, lender requirements and property considerations can be complex.

If you are considering purchasing commercial property through a SIPP or SSAS, contact Kerr & Watson today.