Why purchase a property through a pension scheme?

Normally, if a company or an individual acquires a commercial property that is rented out, they will pay tax on the profits made from renting out that property and tax made on any gain made on sale. However, where commercial properties are acquired through a pension scheme such as a SIPP, the following tax advantages present themselves:

• Rental profits that are received in connection with the property are not subject to income/corporation tax. Instead, the profits will be entirely reinvested into the pension fund.
• Any increase in the value of the property will be free from capital gains tax/corporation tax when sold.

The property can be acquired by the pension scheme direct and tax relief can be given on the cash contributions used to fund the purchase, or it can be made by an in-specie transfer which is when you transfer the property to the scheme, this can trigger Capital Gains Tax charges though. It is important to note that if required, a pension scheme can borrow up to 50% of the value of the pension scheme at the time of borrowing (less any outstanding scheme borrowing).

Please be aware the pension scheme will need to pay Stamp Duty Land Tax if it acquires a property. In addition, we would also recommend inheritance tax advice is taken, given that from April 2027, it is expected that most pension funds will be brought into the scope of this tax.

This article only considers the impact of purchasing commercial property, purchases of residential property do not qualify for the tax advantages described and separate advice would need to be sought. When acquiring a commercial property this way it is important to note that you or your company will not own the property, instead ownership lies with the trustees of the pension scheme.

The above is only a summary of the above subject, if you are interested in acquiring a property through a pension scheme please do let us know so that we can go through the steps that need to be taken to ensure any purchase is eligible for the tax advantages described above.