SIPP Property: Furnished vs Unfurnished Commercial Premises

For residential property, the furnished/unfurnished distinction matters significantly — it affects tax treatment, deposit rules, and tenant rights. For commercial property in a SIPP, the distinction is less consequential from a pure compliance perspective. Commercial premises can be let furnished or unfurnished, and there is no HMRC rule that specifically requires or prohibits either approach in the SIPP context.

What matters more for SIPP purposes is who owns the furnishings and fit-out, and how this is documented in the lease. The SIPP owns the property — but does it own the fitted office furniture, the built-in shelving, or the kitchen units in a restaurant? This question has both accounting and tax implications that are worth understanding before the property is acquired or let.

Commercial leases typically distinguish between the shell and core of the building (which the landlord owns) and the tenant's fit-out (which the tenant owns and is responsible for installing and removing). In most commercial lettings, particularly offices and industrial premises, the SIPP would let the property in a basic shell condition and the tenant would carry out their own fit-out at their own cost.

If the SIPP contributes to the fit-out — either by paying for it directly or by providing a landlord's fit-out contribution (a "lease incentive") — those fixtures and fittings become part of the SIPP's assets. The SIPP provider needs to be aware of and approve any such contribution, and the assets should be properly recorded in the SIPP's accounts. Lease incentives to connected party tenants require particular care — they must be consistent with what would be offered in an arm's-length transaction.

Where a tenant carries out improvements to a SIPP property at their own cost — fitting out a bare shell, installing specialist equipment, or extending the building — the position at lease expiry needs to be considered in advance. Under a standard commercial lease, the tenant may be required to "reinstate" the property at the end of the lease — removing their fit-out and making good any damage. Alternatively, the lease may allow the improvements to remain and pass to the landlord (the SIPP) at lease expiry.

If tenant improvements are allowed to remain, they effectively represent a gift from the tenant to the SIPP at lease expiry — increasing the value of the SIPP's asset. In a connected party context, this could be complex from a tax perspective, as it may be treated as an unauthorised contribution to the pension. The lease should address this clearly, and your SIPP provider should be consulted on the approach.

Commercial property rental is generally exempt from VAT unless the landlord has opted to tax the property. Where an option to tax is in place, VAT at 20% is charged on the rent, which the tenant can reclaim if they are VAT-registered. The presence of furniture or equipment in a let commercial premises does not itself change the VAT position on the rent — what matters is whether the option to tax has been exercised.

However, if the SIPP is separately supplying furniture or equipment to the tenant (rather than simply letting the property with contents), that supply may itself be subject to VAT. In practice, most commercial SIPP lettings are straightforward property leases without a separate furniture or equipment element, and the VAT position is determined by the property's option to tax status. Your accountant or tax adviser should advise on the specific VAT position for your property.

In most cases, the simplest and most commercially conventional approach for a SIPP commercial property is to let it in shell condition on an unfurnished basis, with the tenant responsible for their own fit-out. This is the market norm for offices and industrial property, and it keeps the SIPP's ownership interest clearly limited to the property itself rather than the contents.

Where furnished lettings are appropriate — for example, in certain retail or hospitality contexts — the lease should clearly identify what is included in the demise, who owns each element, and what happens to furnishings at lease expiry. All of this should be reviewed and approved by the SIPP provider before the lease is executed. The key principle is that the SIPP's asset position should be clear, documented, and consistent with the market value requirements that apply to all connected party transactions.