Using a SSAS to Purchase Commercial Property

The Challenge

Robert and Linda own Flower Power Ltd, a successful florist based in South West London. The business operates from commercial premises that they wanted to purchase, giving them greater control over the property while investing in a long-term business asset.

Like many business owners, they wanted to balance the purchase with their retirement planning, making use of their existing pension savings while avoiding the need for the company to fund the entire acquisition itself.

The Solution

Robert and Linda transferred their existing pension savings, totalling £300,000, into a newly established Small Self-Administered Scheme (SSAS).

They wanted to purchase the commercial premises from which Flower Power Ltd operates, with a purchase price of £900,000. To fund the acquisition, the SSAS contributed its £300,000 pension fund, while Flower Power Ltd also contributed £300,000 from its own resources. The remaining £300,000 was financed through a commercial mortgage, with the borrowing arranged jointly between the SSAS and the company.

As a result, ownership of the property was split equally, with the SSAS owning 50% and Flower Power Ltd owning the remaining 50%.

Because Flower Power Ltd occupies the premises, it pays market rent on the 50% share owned by the SSAS. That rental income is received directly by the pension scheme and is used to service the SSAS’s share of the mortgage, while also helping to build value within the pension fund.

Over time, surplus rental income, together with future pension contributions, could enable the SSAS to increase its ownership of the property, allowing a greater proportion of the business premises to be held within the pension scheme.

The Outcome

By using a SSAS to purchase their business premises, Robert and Linda achieved a number of long-term benefits:

• Market rent is paid into the pension scheme rather than to a third-party landlord.
• Rental income received by the SSAS grows in a tax-efficient environment.
• Commercial property held within a pension scheme is not normally subject to Capital Gains Tax.
• The structure provides flexibility for the SSAS to increase its ownership of the property over time through future contributions and surplus rental income.

Understanding SSAS Property Purchase Rules

One of the key advantages of a Small Self-Administered Scheme is its ability to invest directly in commercial property. Unlike residential property, which is prohibited, a SSAS can purchase and hold a wide range of commercial property as part of its investment strategy.

Examples include:

• Offices
• Retail premises
• Industrial units
• Agricultural land
• Land for redevelopment

A SSAS offers considerable flexibility in how commercial property is acquired and managed.

Letting Commercial Property

A SSAS can lease commercial property to both connected and unconnected tenants.

Where the sponsoring employer or another connected business occupies the premises, the rent must be charged at full market value. This allows the trading business to pay rent directly into the pension scheme through a genuine commercial arrangement, helping to build value within the fund while providing the business with continued use of its premises.

Purchasing from Connected Parties

A SSAS can purchase commercial property from connected parties, provided the transaction takes place at market value. An independent professional valuation will typically be obtained to ensure the transaction is carried out on commercial terms and complies with HMRC requirements.

Joint Ownership

A SSAS does not need to purchase an entire property outright.

It can purchase property jointly with:

* the sponsoring employer;
* the scheme members;
* other individuals; or
* other pension arrangements.

Joint ownership provides flexibility where the pension fund alone may not have sufficient capital to complete the purchase.

Borrowing

A SSAS is permitted to borrow money to help fund the purchase of commercial property, subject to HMRC borrowing limits. This can significantly increase the purchasing power of the pension scheme and is commonly used alongside existing pension assets and employer contributions.

Construction and Redevelopment

A SSAS can also fund the construction, improvement or redevelopment of commercial property, enabling the scheme to support long-term investment strategies beyond simply purchasing existing premises.

Why Businesses Consider Purchasing Commercial Property Through a SSAS

For many business owners, commercial premises represent one of the most valuable assets they will ever acquire. Purchasing those premises through a Small Self-Administered Scheme (SSAS) can allow the property to become part of a wider retirement strategy while continuing to support the day-to-day needs of the business.

Where the sponsoring company occupies the property, market rent is paid directly into the pension scheme rather than to a third-party landlord. Those rental payments are received in a tax-efficient environment and can be used to help service borrowing within the scheme while supporting its long-term growth.

A SSAS also offers considerable flexibility. It can purchase commercial property outright, acquire a share of a property alongside the sponsoring employer or other parties, borrow to support an acquisition within HMRC limits, and fund the construction or redevelopment of commercial premises where appropriate.

For business owners, this can create an opportunity to bring together commercial property ownership, business funding and retirement planning within a single long-term strategy, while retaining flexibility as both the business and the pension fund continue to grow.

Every commercial property purchase through a SSAS should be carefully structured to ensure it complies with HMRC legislation while supporting the objectives of both the pension scheme and the business. The right advice at the outset helps ensure the arrangement is appropriate, compliant and aligned with the client’s wider financial planning.

For financial advisers and professional introducers, Day Cooper Day provides the specialist SSAS expertise needed to support clients considering commercial property purchases through their pension. Whether you’re assessing a potential opportunity or working through the details of a specific transaction, we’re always happy to discuss how a SSAS could support your client’s objectives.

If you’re a business owner reading this, speak to your financial adviser about whether purchasing commercial property through a SSAS could be appropriate for your circumstances. If your adviser would like specialist SSAS support, we’d be delighted to work alongside them.