How to Use a Pension to Buy Commercial Property


We are often asked by business owners, “Can I use my pension to buy commercial property?” and for some individuals, this could be very beneficial and tax-efficient. In this video, Jonathan McDowall from MHA Henderson Loggie Financial Planning shares why you might consider using a pension to buy commercial property and the pros and cons of doing so.

Covered in this video:

✅ The positives of buying commercial property via your pension
✅ A client example and the long-term benefits
✅ The main considerations to take into account

📌 If you have any questions, please drop them into the comments section below 👇 or contact Jonathan directly at jonathan.mcdowall@hlfp.co.uk


What’s the benefit of buying a commercial property with your pension?

Firstly, if your business already owns the property, then purchasing within a pension can release capital back into your business for investment elsewhere. Or if you are buying new premises, using your pension can provide a very tax-efficient way to buy that property.


Key positives

  • One of the key positives of holding property within a pension is that when the property is held within the pension, it can grow free of tax, so there’s no capital gains tax on the sale.
  • The rental income that you receive from the property, within the pension, would also be free of income tax. If you’re still the occupier of the property as your business, then the rent you would pay to the pension will be deemed as an allowable business expense.
  • Once the property is held in the pension, it will no longer be subject to Inheritance Tax if that was an issue for you. 
  • When the property is held within the pension it is not accessible to creditors, for example, in the event of personal or business insolvency.
  • If you don’t have enough pension funds as an individual, to buy the property, you can combine your pension funds with other fellow business owners/individuals to purchase the property within a pension.
  • In a similar way, if the pension funds weren’t sufficient to be able to buy the property, a pension can borrow up to 50% of its assets to help it purchase that property.
  • Finally, holding the property within a pension can serve as a good form of exit planning at retirement, if you’re intending to sell your business. You could retain the property within the pension and still receive ongoing rental income to help towards meeting your retirement income needs.

Client example and the long-term benefits

We recently had a client who was looking to expand his business and acquire new premises to do so. He needed advice on how best to acquire that property. He had three options; he could have either rented a new property, his company could have purchased a property, although that would have involved borrowing to do so, or thirdly, we introduced the option of using his pension fund to buy the property.

After a detailed assessment of the individual’s pension provision and financial circumstances, we were able to advise that using his pension funds to buy the property was a suitable option for him. In this case, the individual had enough funds within his pension to be able to buy the property in mind. However, if he hadn’t, we could have looked to make additional pension contributions to allow him to do so.

The result of this advice was, that it allowed the individual to buy the property in a tax-efficient manner using his pension fund without having to borrow to do so. In the long term, this should provide a very beneficial asset to hold within the pension with rental income accumulating to help grow the value of his pension fund. He will also have the ability to sell the property in the future, free of tax, for example, at retirement.


Main considerations

There are several considerations to take into account when you’re buying commercial property within a pension.

  • Firstly, there’s going to be costs involved; for example, legal costs, tax and VAT. There will also be costs associated with the pension. These could be initial costs and ongoing costs.
  • Once the property is held within the pension it’s no longer on the company balance sheet, so it can’t be used as collateral for any loans. 
  • The firm occupying the property within the pension, even if it’s your own business will still need to pay rent. There would need to be regular revaluations in the property and reviews of the rent on an ongoing basis, which could incur a cost. 
  • There will still be ongoing expenses associated with the property and ongoing maintenance, whether or not a tenant was in place in the property.
  • If the property is the primary asset of your pension, it could leave the investments held within your pension poorly diversified. Property is generally an illiquid asset so it can take longer to sell if capital is needed at short notice.

In conclusion

Hopefully, this video has provided a useful summary of using your pension fund to buy a commercial property and also highlighted a potential option as to how we can use our pensions, that you may not have been aware of. If this is something you’d like further advice on, please feel free to contact Jonathan directly (jonathan.mcdowall@hlfp.co.uk) or complete the contact form below.