Can you Buy Property With a Pension Fund?

Have you ever wondered who owns most of the office blocks, shopping centres, industrial estates, and warehouses across the UK?

The simple answer is the biggest owners of land, buildings and infrastructure are the Crown, the Church, the Government and Pension/Investment funds.  It was Legal and General who part owned/built the Dartford Crossing/Bridge, and the Canada Pension Plan Investment Board owns the Trafford Centre in Manchester.  Even on our High Streets and business estates many other commercial units will be owned by an individual’s pension fund or supertanker pension funds.  The directors of this website/firm, Roberts Clark IFS Limited, own our own offices via their pension funds and rent it back to their Limited company.

Commercial v Residential

So, the simple answer is “yes”, pension funds can own property, but it must be commercial property and not residential property.  Commercial property is a ‘permitted investment’ under HMRC pension scheme investment rules as are stocks, shares, bonds, and cash.  The commercial property must also be ‘immovable’ i.e., a building from 2006.  Before 2006, movable business assets such as plant and machinery could be purchased by a pension fund and leased to the business owner but not anymore.

Semi-Commercial

Residential property is not a permitted investment inside a pension fund, but they may purchase commercial property with limited residential accommodation for managers/caretakers/overnight security etc., e.g., a hotel but the owners of the pension fund cannot usually live in the residential part (as they are ‘connected parties’).

Pensions and Borrowing

Your pension fund can even borrow money.  Your pension fund can have a mortgage.  Borrowing is restricted to 50% of the pension fund value.  For example: if your pension fund is worth £200,000, the pension fund could borrow £100,000 + £200,000 in the fund to buy a commercial unit for £300,000.

Tax Benefits

• Commercial property inside a pension fund grows capital gains tax free.
• Rents paid by the tenant to the pension fund (as landlord) are not subject to income tax or corporation tax.
• Rents paid are an allowable business expense meaning they can be offset in the same way as if you were renting from a non-connected person.
• This means all business owners do have an alternative route to acquiring their own business premises and renting back to their own business rather than ‘lining the pockets’ of a landlord.

Types of Pension Scheme

Apart from the ‘supertanker’ commercial property funds run by big investment and pension firms, individuals and business partners can use their own pension funds to buy commercial property either via:

• A Self Invested Personal Pension Plan (SIPP) – usually held by individuals.  An individual and their own SIPP can buy on their own or combine with other SIPP owners to buy commercial property together.
• A Small Self-Administered Scheme (SSAS) – a company sponsored ‘executive’ type pension scheme that may have directors or senior management as members and combine their pension into one larger scheme.

Contact  Call Back  Calculators  Our Fees