Pension funds holding property – what next?

The introduction of inheritance tax (IHT) on unused pension funds on death, from 6 April 2027, introduces some strategic challenges for business owners. A particularly complex scenario involves shareholders of private trading companies who hold company-occupied commercial premises inside a Single Member SIPP or Small Self-Administered Scheme (SSAS).

Currently, trading companies pay commercial rent into the pension scheme to occupy the property. Historically, this offered three key advantages:

• Tax-free rental income within the pension fund shelter.
• Tax-free capital growth on the underlying commercial property.
• Complete IHT exemption on the pension fund assets (and, by extension, the business premises).

From 2027-28, the position changes as:

• On the pension scheme member’s death, the scheme administrators (PSAs) may need to realise cash quickly to meet any IHT liability relating to the scheme; and
• Freedom from IHT disappears on scheme assets which could result in sizable liabilities where pension death benefits pass to anyone other than the deceased member’s spouse.

HMRC’s technical note, Inheritance Tax on pensions updated on 29 May 2026, confirms that no business relief or agricultural relief will apply to assets held within a pension fund.

Given that business relief is available if the property is owned and used by the trading company or owned by a controlling shareholder and used by the business, business owners must decide whether to extract commercial property from the pension fund to mitigate IHT. This would also give the pension fund liquidity to meet any inheritance tax liabilities on the fund.

Of course, the loss of income tax and Capital Gains Tax (CGT) benefits when retaining the property in the pension fund - which is more attractive (and relevant) for younger pension scheme members - also needs to be considered.

Business relief

As a reminder, following recent reforms, business relief is available:

• At 100% on qualifying shares in an unquoted trading company up to the £2.5 million lifetime allowance. (Note: BPR is excluded if the company's business consists wholly or mainly of holding property investments or dealing in land.)
• At 50% on:
  • Qualifying trading company shares to the extent their value exceeds £2.5 million; and
  • Property owned personally by a controlling shareholder that is used in the trading company's business.

In both cases, the company or shareholder would need to purchase the property from the pension scheme at full current market value to avoid the transaction giving rise to a partial withdrawal (purchase price at undervalue) or a partial contribution (purchase price in excess of market value). The good news is that there would be no CGT on the sale of the property by the pension fund.

Where a shareholder or company does not have liquid funds available to purchase the property, they will frequently need access to mortgage funds. The property can act as security and mortgage interest payments should be tax deductible. However, it is important to remember that current IHT rules do not permit the deduction of a loan used by an individual to buy property qualifying for business relief as a deduction against the estate. This does not apply where a company borrows to buy the property and the later transfer of value is then in relation to the shares in the company.

The tax implications of each route are:

Company purchase

• The property will form part of the company’s assets and, as such, increase the company’s value. The shareholder will qualify for 100% business relief on qualifying shareholdings up to £2.5 million, with 50% relief thereafter.
• If the company later disposes of the property, capital gains that have arisen since the company acquired the property from the pension fund are subject to corporation tax. However, if the company replaces the property with other qualifying business assets, rollover relief under s162 TCGA 1992 can defer the corporation tax.
• There will be no CGT disposal (or revaluation for CGT purposes) of the property on the shareholder’s death.
• No rental payments – the company owns the property.
• The company can use the property as security for further borrowing.
• There will be no need to sell the property (or raise other finance) when a member draws benefits from the pension fund.

Purchase by a shareholder

• The company pays rent to the shareholder for occupying the property.
• The shareholder is subject to income tax on rental income but no National Insurance Contributions (NICs) are payable, so this can be an effective way to remove cash from the company.
• If the shareholder borrows cash to raise funds to purchase the property, interest paid is offsetable against rental income for income tax purposes.
• Provided the shareholder is a controlling shareholder and the company uses the property for business purposes, 50% business relief is available on the value of the property, but any loan raised to purchase the property is not deductible against the estate.
• On a subsequent sale of the property, CGT is payable – probably at 24% – on the gain since acquisition. CGT rollover relief is available if a new property is bought which is then let to the individual’s personal trading company.
• Business Asset Disposal Relief (BADR) (18% on lifetime business gains of up to £1 million) is unlikely to be available if the property is let at a commercial rent as it would then be viewed as an investment asset (s169(5) TCGA 1992).
• On the shareholder’s death, the property is revalued for CGT purposes with no CGT then payable. However, it would form part of the shareholder’s taxable estate, albeit with 50% business relief.
• Private ownership makes estate planning more difficult. It is easier to transfer company shares than a part of a property.
• The shareholder could use the property as security for future borrowing purposes.

Which course of action is best? 

As ever, much depends on the circumstances and advice is likely to be essential. Other factors such as transaction costs and Stamp Duty land Tax (SDLT) will need to be considered.

Navigating the intersection of trust taxation, commercial property, and estate planning requires careful coordination; Get in touch with our team today.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The information in the article is based on current laws and regulations which are subject to change as at future legislations. 

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.

The information in this article is correct as at 18/08/2026.

The Financial Conduct Authority does not regulate tax advice, trusts or estate planning.