How do I use my pension to buy a business property?

Hosts: Abdul (WIS)

Guest: Suneth (Director at WIS Group, Accountant, and Independent Financial Adviser)

Introduction

Abdul:
Many businesses in the UK rent their premises. This often means a significant portion of business income goes towards rent — money that simply increases the wealth of landlords.

Today, we’ll discuss how your pension might be used to help you purchase your own premises instead.

Q&A

1. Why should business owners consider buying their own premises?

Abdul:
Usually, businesses rent office space, which means they’re paying rent to a third-party landlord and helping that landlord build wealth. So, it makes sense for business owners to buy their own premises.

You can actually do this using your pension scheme. We’ll talk in detail about SIPPs (Self-Invested Personal Pensions) and SASS (Small Self-Administered Schemes). Both types are eligible to buy commercial property, and you can invest through these schemes or even directly into commercial property—or use a mix of both.

2. What types of properties are considered “commercial properties”?

Abdul:
When you say commercial property, what kinds of properties are we talking about?

Suneth:
That’s a great question. Buying property through a pension is restricted to commercial property only.

Examples include:

• Office spaces
• Shops and retail units
• Pubs
• Factories
• Land

Important: You cannot buy anything with a residential element.

For example:

• Holiday lets
• Shops with flats above them
• Houses or any property with residential components

These are not allowed within pension buyouts.

3. Can you buy property abroad using a pension?

Abdul:
Does this also apply to properties outside the UK?

Suneth:
Unfortunately, no. You can only buy commercial property within the UK.

SIPP administrators cannot verify or validate the value of overseas properties, which causes administrative challenges. Therefore, pension schemes are limited to UK commercial properties.

4. How can someone fund a SIPP to buy property?

Abdul:
You mentioned SIPPs earlier — obviously, you’d need money in there. How would a client fund that?

Suneth:
There are several options available:

Business Contributions:

• Your business can make pension contributions of up to £40,000 per tax year to your private pension.
• If you have multiple directors or shareholders, you can pool funds together to buy a property.

Pooling Pension Funds:

• Pension funds from multiple directors can be combined under a SIPP to purchase a property jointly.

Personal Contributions:

• Personal pension contributions are topped up by the government by an extra 20% in tax relief.

Consolidating Pension Pots:

• You may have multiple old pensions — consolidating them gives you more funds to invest.

Borrowing:

• SIPPs or SASS schemes can borrow up to 50% of the pension’s value from banks.
• Example: If your pension has £200,000, you can borrow an additional £100,000 to buy a £300,000 property.

5. What are the advantages of buying property through a pension versus a standard mortgage?

Abdul:
What are the advantages of buying property this way instead of through a normal mortgage?

Suneth:
The main benefits are tax-related:

Corporation Tax Savings:

• When your business contributes to your pension, it reduces your corporation tax bill.

Tax-Free Rental Income:

• Rental income received by the pension fund is tax-free.

No Capital Gains Tax:

• When the property is sold in the future, there’s no capital gains tax within the pension.

Inheritance Tax Advantage:

• Pension assets are outside your estate, so they’re not subject to inheritance tax.

Flexibility and Control:

• Owning your premises gives you control over rent and occupancy.
• You won’t have to worry about landlords increasing rent or forcing you to move.

6. Can properties be owned jointly through a pension?

Abdul:
From what we’ve seen, most commercial properties are jointly held. Is that acceptable when buying through a pension?

Suneth:
Yes, absolutely. Properties can be purchased jointly through pensions.

• Pension funds can be combined to buy a single property.
• The pension could buy a portion (e.g., 50%) while the business owns the rest.
• It’s also possible to have multiple pension funds (3–5) join together to purchase a property.

7. Can you access or use the funds before retirement age?

Abdul:
When people hear “pensions,” they often think they have to wait until 55 or older before they can use the funds. Is that true in this case?

Suneth:
That’s a common misconception.

While you cannot draw money from your pension before retirement, the rental income from your commercial property goes into your pension pot, helping it grow.

You can:

• Reinvest that rental income into other investments or properties within the pension.

However, you can’t withdraw it personally until you reach retirement age.

So, the money continues to build until you reach drawdown age.

8. What are the costs involved?

Abdul:
Usually with pensions and investments, there are fees involved. What kind of costs should people expect?

Suneth:
Yes, there are several costs to consider:

• Stamp Duty: Payable on the purchase price.
• Solicitor Fees: Legal costs for completing the transaction.
• Bank Fees: If borrowing is involved.
• Surveyor and Valuation Fees: Required for property assessment.
• Insurance and Business Rates: Ongoing ownership costs.
• Pension Scheme Fees: SIPPs or SASS schemes charge their own administration costs.
• Advisor Fees: If using a financial adviser.
• VAT: Most commercial properties are sold plus VAT, so that’s an added expense to factor in.

9. Summary and Final Advice

Abdul:
To wrap up, if you’re a business owner with cash in the bank and want to use it to buy your own commercial property, you can do this through your pension.

It’s a very tax-efficient way to build long-term wealth for both your business and yourself.

If you have any doubts or need guidance, our team is always happy to help.

Suneth’s contact details are in the description below.

Closing

Abdul:
If you have any questions about the topics discussed today, you can call us on 020 3011 1986 or visit our website at https://wismortgages.co.uk/

Thank you for watching, and we’ll see you on the next episode of Let’s Talk Money and Mortgages.