SIPP vs SSAS — Key Differences
A SIPP (self-invested personal pension) is a personal pension where the provider holds assets in trust and the member directs investments within HMRC rules. An SSAS (small self-administered scheme) is an employer-sponsored occupational pension with up to approximately 11 members who are also trustees, giving considerably more investment flexibility. Both can hold commercial property tax-efficiently.
Permissible Commercial Property Types
Commercial property held in a SIPP or SSAS is a permitted investment. Permissible types include offices, retail units, industrial units and warehouses, agricultural land, car parks, licensed premises, and hotels. Residential property — including HMOs, holiday lets, and student accommodation — is absolutely prohibited under Finance Act 2004 Schedule 29A regardless of the proportion of residential use.
- Permitted: offices, retail, industrial, warehouses, agricultural land, car parks, licensed premises
- Prohibited: any residential property, HMOs, holiday lets, student accommodation
- Indirect holdings via listed REITs on recognised stock exchanges are permissible
- Unauthorised payment charge: 40% on the member plus 15% scheme sanction charge — total approximately 55% of the prohibited investment value
Sale-and-Leaseback
A landlord who owns commercial premises can sell the property to their SIPP or SSAS at RICS open market value and then lease it back at a market rent. The purchase must be at full RICS-assessed value, the lease must be at arm's length market rent (reviewed regularly), and the transaction must be on fully commercial terms. The commercial result: the sale proceeds are released to the business, the rent paid is a deductible business expense, and future rental income and capital growth accumulate tax-free within the pension.
- RICS valuation required both at purchase and rent review — arm's length price mandatory
- Lease must be on fully commercial terms — below-market rent is an unauthorised payment
- SDLT payable on purchase at commercial rates (pension is a separate legal entity)
- Rental income accumulates free of income tax within the pension scheme
- Capital growth on sale from the pension accumulates free of CGT
SSAS Employer Loans
An SSAS can lend money to the sponsoring employer — a facility unavailable to SIPPs. The loan is limited to 50% of the net SSAS fund value, must carry interest at a minimum of Bank Rate plus 1%, and must be secured on employer assets (commercial property, plant, or a debenture). The maximum term is 5 years, renewable on fully commercial terms with a commercial repayment schedule. Failure to meet any of these conditions triggers an unauthorised payment charge.
SIPP Borrowing
A SIPP can borrow up to 50% of its net fund value to assist in purchasing commercial property. The borrowing must be from a commercial lender at commercial rates; it cannot be from the member or a connected party. The combined effect is that a SIPP member with £500,000 in their pension can potentially purchase a commercial property worth up to £750,000.
Tax Advantages
Commercial property held in a pension benefits from: no income tax on rental income received by the scheme; no CGT on property sales within the scheme; employer contributions to an SSAS or SIPP are deductible against corporation tax; and up to 25% of the fund can be drawn as a tax-free cash lump sum on retirement. The lifetime allowance was abolished from April 2024 under the Finance (No.2) Act 2023, though individuals with existing LTA protections should take specialist advice. Proposals in the 2024 Autumn Budget to bring pension assets into the IHT estate from April 2027 are subject to legislation and professional monitoring.