Premises, SIPPs and Inheritance tax on death post March 2027

Once upon a time it was very attractive to have your business premises held by your Self- Invested Pension Plan (SIPP) or similar arrangement. That was back in the day when pensions were outside of the scope to Inheritance Tax (IHT) on death, which is scheduled to end for those dying after the end of March 2027 as the law stands at present.

Business owners with commercial premises held in a SIPP may see a substantial increase in IHT exposure from April 2027.

In addition, commercial property within a pension wrapper allowed for the rents to be paid without any income tax deduction on the part of the recipient of the rental payment because of course the recipient being a pension arrangement was outside the scope to income tax.

The payments of the rent by you, as a sole trader, or by yourself through an incorporated business or by you as a partner in a partnership would be taxation beneficial to corporation/income tax for the payer of the rent.

 Furthermore, it provided a degree of security should the underlying trading company become insolvent etc. The premises would still be held outside of the corporate wrapper of the failed business. The premises could be let to a new third-party tenant and as such the financial damage brought about by a business failure could legitimately be minimised.

But quite a lot of the landscaping is changing in ways which are not immediately obvious.

One of those changes is the bringing in of pension asset values to a deceased’s estate where the would-be pensioner dies after March 2027. This is, therefore, rather more a call to action for today’s business owners and managers having these sorts of arrangements in place than anything else.

While these changes remain subject to legislative finalisation, they are sufficiently advanced that business owners should plan on the basis they will come into force.

IHT Example pre March 2027

If, we say, you are a single or divorced person and the value of your premises within your SIPP is £800,000 and you have shares in your trading company worth say £500,000 and your property, other investments and cash is worth a further £1,500,000, then at present the £800,000 value of the SIPP is outside the scope to IHT.

The £500,000 value of your shares in your trading company is also outside of the scope to IHT. Your tax bill is effectively 40% of £1,500,000 less your available Nil Rate Band (‘NRB’) Allowance of £325,000.

We are making the working assumption that no Residential NRB (RNRB) allowance is available here by reason of our hypothetical person not having any children, grandchildren et cetera. The testator is not leaving assets to UK registered Charities.

The IHT bill is therefore £470,000.

IHT Example post March 2027

If we contrast that to the situation after March 2027, then the shares being worth less than £2,500,000 ( the new and improved APR/BPR cap) and  outside the scope to IHT but this time the value of the commercial property within the pension fund is within the scope to IHT and therefore by this one change, the IHT bill jumps by £320,000 to £790,000. Had the premises be held outside of the pension either in some form of corporate structure associated with the existing trading company or whether the same been held by the individual, a far better IHT outcome would’ve been achievable.

In the first case of the premises being held by a holding company, for instance, to the trading company, then 100% business property relief could have been achievable. The value of the 100% BPR assets is £1,300,000 which is beneath the £2,500,000 threshold. Accordingly, in this instance, no IHT would be charged on the value of the business premises on the business owner’s death.

If the business owner had chosen to hold the premises themselves personally outside of the operating company, then Business Property Relief at the 50% rate would be achievable. That means, effectively, the IHT bill on death would not be £320,0000 but reduced to £160,000.

In short, holding the premises within the pension increases the IHT bill.

Of course, we will be the first to admit that we have ignored the continuing attractions of the rent being say corporation tax deductible for corporation tax calculations, nor of the benefit of the rents rolling up income tax free during the currency of the arrangement.  But I am signalling out treatment on death, and this is a through provoking piece and is not in itself ‘advice’.

How to Remove Commercial Property From a SIPP

(General UK process — always ‘scheme‑specific’ and will invariably require FCA regulated advice and provider consent.)

There are four legitimate ways property can leave a SIPP. The right route depends on whether you want the property personally, wish to transfer it elsewhere, or need to extract it for tax or liquidity reasons.

 1. A “Benefit in Specie” Transfer (Crystallised Benefit)

You can take the commercial property as a pension benefit, rather than as cash.

How that works in outline:

• The SIPP transfers legal ownership of the property to you personally.

• This counts as a pension withdrawal.

• You are taxed on the market value of the property at your marginal income‑tax rate.

• If you have available tax‑free lump sum entitlements, you could use part of that against the transfer.

When it may be considered for use

• Where the member wants the property outright in their own hands and is willing/able to pay the income tax charge that comes with it.

• Often unattractive for larger/more valuable properties given 40/45% income tax bill if drawn beyond the TFC.

2. Sell the Property Out of the SIPP (Arms‑Length Sale)

 The SIPP can simply sell the property, either:

• to you personally – you must pay full market value from personal funds or borrowing,

• to your company – it must pay full market value from retained funds or borrowings, or

• to a third party.

–  The sale must be a genuine market‑value transaction (RICS valuation usually required).

–  The SIPP then holds cash which can be reinvested or drawn down.

–  There may be issues where the trading company is both tenant and purchaser on extraction which may lead to considerations such as Lease surrender / re grant costs and the need for Lender consent where pension borrowing exists

Tax

• No CGT within the SIPP on sale.

• SDLT is payable by the buyer (including you).

 3. Transfer the Property to Another Pension Scheme

 If the goal is simply to move the asset out of a SIPP but keep it in pension wrapper:

• Transfer “in specie” to a SSAS or another provider.

• No tax charge, as it’s scheme‑to‑scheme.

 This is useful when:

– You want more control (e.g., through a SSAS run by company directors).

– The SIPP provider no longer wishes to hold property or charges have become prohibitive.

– But that, of course is not going to see a reduction in the amount of IHT payable on death, and so such changes are usually because the SIPP provider no longer wishes to hold property or their charges for the same have become prohibitive.

4. Forced Exit: Provider No Longer Serves Property SIPPs

 Some SIPP operators are withdrawing from commercial‑property administration. If so, the member typically must:

• Sell the property,

• Transfer it to another pension, or

• Receive it as a benefit in specie.

You cannot simply “take it back” without triggering tax consequences.

 Practical Requirements You’ll Need to Consider 

• A recent RICS Red Book valuation is almost always required for sale or in‑specie transfers.

• Liquidity for Costs

SIPPs must retain cash for:

• provider fees,

• legal fees,

• VAT administration (if the property is opted to tax),

• insurance.

If the property is the SIPP’s only asset, you may need to inject cash before completing the extraction.

VAT

If opted to tax:

• VAT must be charged on sale unless a TOGC applies.

• A transfer of property as part of a “going concern” (e.g., with a tenant) may avoid VAT.

 Borrowing

 If the SIPP has borrowing against the property, this must be:

• repaid as part of the removal process, or

• refinanced by the purchasing party.

Common Scenarios and What Usually Happens

You want to own the property personally

→ You either buy it from the SIPP or take it as a taxable in‑specie benefit.

You want it back into the business

→ The company buys it from the SIPP at market value, often funded through commercial lending.

You want to simplify later‑life planning

→ Sometimes the better route is to sell the property and move the SIPP into liquid investments rather than extract the property itself.

So, for whom is buying their premises out of their pension going to be attractive?

A.  Those persons personally or via their trading companies who have the cash or the ability to borrow in a tax efficient way so that they can do this; and

B.  Those who will pay the SDLT associated with the scheme which will be at the non residential scale of SDLT rates.

This is probably a joint effort between you, your accountant, and your financial advisors acting together with your lawyers in a collaborative manner.

This article is intended for general information only and does not constitute legal or tax advice.

Please speak to us — our Private Client and commercial property teams collaboratively work together on these matters to ensure you receive the best tailored advice. Please contact Daldeep Jaswal for the commercial property aspects on djaswal@bussmurton.co.uk , and Edward Walter for the Private Client  overview on ewalter@bussmurton.co.uk .