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Property – Should you invest personally or via your pension fund?


Holding Commercial property in your pension scheme has never looked more favourable as an alternative to the popular option of holding ‘buy to let’ property personally.

The pension fund can only hold commercial property, whereas an individual can hold either commercial or residential property personally.

What are the benefits of holding commercial property in a pension fund?

Commercial property held in a tax exempt pension fund means that:

  • There is no capital gains tax generated on any gains made on the increase in capital value.
  • Rents paid into the scheme are not taxed as income.
  • Rental payments do not count towards your annual contribution allowance.
  • If the tenant is your own company the rents will be tax deductible against your company as a business expense.
  • If death occurs prior to age 75 the asset can be passed to your nominated beneficiaries completely tax free. If death occurs after age 75 the income or asset is charged as income in the hands of the recipient at their marginal rate of income tax which may be zero or 20%.
  • In the event of you being made bankrupt or your company being put into administration, the pension is generally safe from creditors.

With recent pension freedoms should I take some or more money from my pension fund?

If you are thinking of withdrawing funds from your pension to purchase a ‘buy to let’ property then you should consider the following:

  • Withdrawals from the pension fund over the generally available 25% tax free cash amount will be taxed at your highest marginal rate of income tax up to 45%. This may also result in lower levels of contribution being allowable to the pension fund.
  • You are removing funds from a trust that is generally exempt from Inheritance tax (IHT) and placing these monies into your estate. This could result in a 40% IHT tax liability on death for the next generation.
  • The income you receive from the ‘buy to let’ property will be subject to income tax at your highest marginal rate. This may impact on the amount of pension contribution you may also make if you are classified as a higher earner.
  • Capital gains tax will also be due on increases in capital value.

Recent changes in legislation that have swung the pendulum further in favour of commercial property are:

Stamp duty (SDLT) on Commercial Property for values under a million has typically fallen, as the rates are now tiered.

See below

Property or lease premium or transfer value SDLT rate
Up to £150,000 Zero
The next £100,000 (the portion from £150,001 to £250,000) 2%
The remaining amount (the portion above £250,000) 5%


For example:

Consider buying a commercial property valued at £300,000

The stamp duty costs would be:- £4,500

Prior to the 17th March 2016 changes the stamp duty costs would have been £9,000.

For second residential properties there will be an additional charge on stamp duty of 3% on all properties valued over £40,000.

For example:

Consider buying a ‘buy to let’ property valued at £300,000

The stamp duty costs would be:- £14,000

Prior to the 17th March 2016 changes the stamp duty costs would have been £5,000.

It should also be noted that higher rate tax relief is no longer given to those who have mortgages associated with their ‘buy to let’ properties.

In conclusion, if you are looking at property as an asset to hold as an investment, then consideration should be given to commercial property and the opportunity of holding it through a pension fund. Please note that not all pension funds will allow directly held commercial property and you will need to utilise a bespoke pension provider.

For further information on holding commercial property in either a SIPP or SSAS pension fund, please visit our technical guides or contact Kerry Houghton on 01772 550614 or via email

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