The Benefits of Your Company Leasing From Your Pension

When your company leases its commercial premises from your SIPP pension fund, two things happen simultaneously: your company gets a fully deductible business expense (the rent), and your pension fund receives a tax-free income stream. This means money that would otherwise leave the business as corporation tax flows into a tax-sheltered environment — your pension — where it grows free of further tax.

This is fundamentally different from paying rent to an unrelated commercial landlord, where the money leaves the business and the tax benefit stops there. With a SIPP landlord, the rent is recycled into your retirement fund rather than leaving your financial ecosystem entirely. Over a typical business occupancy of ten to twenty years, the cumulative pension fund benefit of this structure can be very significant.

The rental income flowing into the SIPP accumulates within the pension wrapper without being subject to income tax. Any capital growth in the property's value is also sheltered from capital gains tax within the SIPP. When the SIPP eventually sells the property — either to fund retirement income or as part of a restructuring — no CGT is payable on any gain realised since the SIPP acquired the property.

This combination of tax-free income and tax-free capital growth, compounding over the period of business occupancy, means that the effective return on capital invested in the property is materially higher inside a SIPP than it would be for the same property held personally or through a company. Our Rental Yield Calculator can help you model the gross and net yields from a SIPP property investment.

Direct pension contributions are limited by the annual allowance — currently £60,000 per year. However, rent paid by your company to your SIPP is not a pension contribution — it is a commercial transaction. As long as the rent is at market value, there is no annual allowance consideration. This means the SIPP can receive rental income well in excess of what you could contribute directly in a given year.

For business owners who have used up their annual allowance through salary sacrifice or direct contributions, the SIPP property lease structure provides an entirely separate channel for building pension fund assets. This is one reason why high-earning business owners find the connected party property structure so attractive at the point where other pension funding routes are constrained.

From the company's perspective, occupying SIPP-owned premises provides several operational advantages beyond the tax deductibility of rent. The business has security of tenure through a formal commercial lease — it cannot be evicted by a third-party landlord at short notice. The lease terms can be structured to suit the business's needs, including appropriate break clauses and renewal rights.

The business also benefits from certainty of occupancy costs. Unlike open market leases where a rent review can result in a significant uplift, the connected party lease rent is set with reference to the same open market evidence — but the landlord (the SIPP) and tenant (the business) share a common financial interest in keeping the arrangement stable and compliant. This tends to make rent reviews more straightforward in practice.

SIPP funds sit outside the member's estate for inheritance tax (IHT) purposes. This is a significant additional benefit of holding property within a SIPP rather than personally. Property owned personally — including business premises — falls into the estate and may be subject to IHT at 40% on death. Property held in the SIPP, including commercial premises leased to your business, is generally excluded from the taxable estate.

From April 2027, the government has announced changes that may bring inherited pension funds into the IHT regime for some estates. However, the IHT treatment of assets held within the pension during a member's lifetime — and the income and CGT benefits during that period — are unaffected. Taking specialist inheritance tax advice in the context of your overall estate plan is advisable.