Using a Self-Invested Personal Pension (SIPP) to hold commercial property is a popular move for many business owners—and with good reason.
It can be tax-efficient, especially if you rent the property back to your own business. The company deducts the rent as a business expense, and the rent builds up in your pension tax-free. Win-win, right?
Well… only if you follow the rules. And if the rent isn’t paid on time—or at all—the tax consequences can be severe.
Let’s take a closer look at how this works, and why missing a rent payment could cost far more than you think.
Why Use a SIPP to Hold Property?
Holding commercial property inside a SIPP offers several key benefits:
- Tax-free rent: The rent paid by your business goes into your pension pot, not your pocket—but without being taxed
- Capital gains tax-free growth: If the property increases in value, the SIPP doesn’t pay CGT when it’s sold
- Business tax deduction: Your company can deduct the rent when calculating its profits
But it only works if you treat the arrangement like a proper commercial lease—especially if the tenant is connected to you.
What Counts as a “Connected Person”?
HMRC applies connected person rules when the property is let to:
- You (the scheme member)
- Your spouse, civil partner or relative
- A company you’re connected to (e.g. your personal or family business)
- A partnership where you’re involved
So, if you let the property to your own company—or your spouse’s business—you’re in connected territory.
The Rent Must Be at Market Rate
The rules are clear: the rent must be set at a commercial, arm’s-length rate—just as it would be if a third-party tenant was renting the space.
That means:
- No “mates’ rates” or rent-free arrangements
- The lease must be enforced strictly
- Late rent must be chased, and rent reviews carried out periodically
The property belongs to the pension scheme, not to you personally. So even if you’re the tenant, you can’t just adjust the rent to suit your cash flow.
What Happens If the Rent Isn’t Paid?
This is where the real trouble starts.
If rent due to the SIPP remains unpaid, it can be treated by HMRC as an unauthorised payment—which can trigger a series of hefty tax charges:
The Charges
- 40% unauthorised payments charge on the amount of unpaid rent
- An additional 15% surcharge may apply, depending on the size of your pension pot
- The pension scheme itself may also face a charge—typically 15%, but it could be up to 40%
And it doesn’t stop there…
You Must Report It
If the rent remains unpaid by 31 January after the tax year ends, it must be reported to HMRC via an event report.
For example, if rent for 2024/25 is unpaid, you must report it by 31 January 2026.
You’ll also need to:
- Include the charge in your Self Assessment tax return
- Pay the tax by 31 January following the end of the tax year
No Flexibility in Tough Times
It’s easy to assume that because your pension holds the property, you can offer your business a rent holiday or reduce the rate during a quiet patch.
Unfortunately, you can’t.
The rules treat the pension scheme as a separate legal entity. That means:
- You must pay rent in full
- You must pay on time
- You must follow the lease terms to the letter
Failure to do so could result in a very expensive tax bill that wipes out any savings you were hoping to make.
Thinking About Buying Property Through a SIPP?
A SIPP can be a smart way to invest in commercial property—but only if you understand the rules and follow them closely.
If you already rent from your SIPP and you’re worried about missed payments, or if you’re considering using one to buy a commercial unit for your business…
Speak to Jon or the team today for clear, expert advice that protects both your pension and your tax position.
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Any questions?
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