SSAS commercial property, purchase and leaseback and borrowing rules
A Small Self-Administered Scheme (SSAS) is an occupational pension scheme typically established by a company for its directors and key employees. Key features for commercial property investment:
- Commercial property purchase in SSAS: the SSAS can purchase freehold or leasehold commercial property (office; industrial; retail; agricultural; mixed commercial/residential where the residential element is genuinely incidental); the SSAS is the registered proprietor at HM Land Registry; rental income is received by the SSAS tax-free; capital gains on disposal within the SSAS are CGT-free
- Borrowing: the SSAS can borrow up to 50% of the total net scheme assets to fund commercial property purchases; the loan must be from a commercial lender on arm's length commercial terms
- Purchase and leaseback: the SSAS purchases commercial property that is then leased to the sponsoring employer (the owner's company) or to a third party; where let to the sponsoring employer: the lease must be at open market rent (HMRC scrutinises connected-party transactions; RICS valuation of market rent recommended); the rent must be on commercial terms; the rent is a deductible business expense for the company and tax-free income for the SSAS; a proper commercial lease (not an informal arrangement) is required
- SSAS vs SIPP for connected-party transactions: a SSAS permits connected-party transactions (lending to the sponsoring employer within limits; property leaseback) subject to HMRC arm's length requirements; a SIPP has more restricted connected-party transaction rules
- SSAS trustee obligations: the trustees (often the scheme members plus a professional trustee) have fiduciary duties to administer the scheme in accordance with the trust deed and HMRC Pension Tax Manual requirements; all connected-party transactions must be documented and justifiable at arm's length
SIPP commercial property rules, residential property prohibition (taxable property) and LTA abolition
- SIPP (Self-Invested Personal Pension): a SIPP can purchase commercial property on the same terms as a SSAS — rental income tax-free; CGT-free on disposal; borrow up to 50% of net scheme assets; the SIPP is the registered proprietor
- Residential property in a SIPP — ABSOLUTELY PROHIBITED: Finance Act 2004 s.174 and Schedule 29A define residential property as 'taxable property'; consequences: (a) 40% unauthorised payment charge on the value of the taxable property — paid by the member; (b) 15% scheme sanction charge — paid by the SIPP provider; combined these charges can exceed 55% of the property's value, potentially destroying a major part of the pension fund
- What is 'residential property' for SIPP purposes — the definition is broad: any property used or suitable for use as a dwelling; property in the process of being converted to residential; holiday cottages; bed and breakfast properties; serviced apartments operated as short-term residential lets; purpose-built student accommodation; retirement living; mixed-use commercial/residential properties where the residential element is material (not genuinely incidental); even 'commercial' properties with a flat above are at risk unless the residential element is demonstrably incidental
- Genuinely diverse commercial exception: a very narrow exception exists for collective investment scheme structures holding diverse portfolios of commercial and residential property — this does NOT apply to individual direct property ownership within a SIPP and is not relevant to most landlords
- Lifetime Allowance ABOLISHED from 6 April 2024 (Finance Act 2024 ss.1-5): the Lifetime Allowance (previously £1,073,100 in 2022/23) was abolished; there is no longer a maximum on the total value of pension scheme assets; this removes a significant barrier to high-value commercial property accumulation within a pension
- Annual allowance: £60,000 per year (2024/25 and 2025/26) is the maximum total pension contribution (employer + employee contributions combined) that can receive tax relief; the money purchase annual allowance (MPAA) reduces to £10,000 per year once flexible drawdown has been accessed — important for landlords who have already drawn pension income
- Pension contributions and employer relief: employer contributions to a SSAS receive corporation tax relief as a business expense; personal contributions receive income tax relief at the member's marginal rate (up to the annual allowance)
- UK-wide application: pension rules (SSAS and SIPP) are reserved UK-wide matters — the same rules apply in England, Wales, Scotland, and Northern Ireland; Scottish PRT and NI PT(NI)O 2006 apply only to tenancies created within those jurisdictions — since SIPPs/SSASs cannot hold residential property, the relevant tenancy framework applies to the commercial leases held within the pension