Owning your business premises through a pension can bring your commercial and retirement plans together. Your company occupies the property, rent flows into your pension, and the building becomes part of your long-term retirement fund.
But what happens if your family inherits a pension containing a valuable building and very little cash?
From 6 April 2027, most unused pension funds and pension death benefits will be included when calculating inheritance tax. For business owners with commercial property inside a pension, the challenge may be less about the headline tax rate and more about finding the money to pay it.
A building can have substantial value without providing readily available cash. That distinction could have consequences for both your family and your business.
A pension asset with a business attached
Commercial property can be held within a self-invested personal pension, or SIPP, or a small self-administered scheme, known as a SSAS.
For an owner-director, that property might be the office, workshop or warehouse from which the company operates. It is therefore more than an investment: it is also part of the business’s infrastructure.
If an inheritance tax liability creates pressure to sell, the implications extend beyond the pension fund.
A sale does not automatically mean the business must leave; an existing lease may continue. But it could introduce a new landlord, remove family control over the premises and complicate succession plans at an already difficult time.
A valuable building does not pay a tax bill
Under the new rules, inheritance tax attributable to pension benefits will normally be due by the end of the sixth month after death. Interest accrues on unpaid tax after that point.
That timetable can be challenging where a pension’s main asset is commercial property.
Obtaining a valuation, finding a buyer and completing a sale all take time. Selling a fractional interest in a building may be particularly difficult. A rushed transaction could mean accepting less favourable terms.
Rent provides an income stream, but it may not generate enough cash quickly enough to meet a substantial liability.
Importantly, HMRC has confirmed that the option to pay inheritance tax over ten annual instalments will not apply to pension benefits simply because the underlying investment is property.
Owners should not assume the “qualifying property” payment flexibility available for some directly owned assets will extend to their pension.
A sale is not inevitable
Including pensions in the inheritance tax calculation does not mean every pension will face a tax bill. Available allowances and exemptions still matter, including the spouse or civil partner exemption where applicable.
Nor must any liability necessarily be funded by selling pension assets.
Depending on the circumstances, funds outside the pension may be available. Personal representatives and beneficiaries will also have a mechanism to instruct registered pension schemes to pay the relevant tax directly to HMRC.
However, a payment mechanism does not create liquidity. If the scheme holds a building rather than cash, someone still needs to establish how the payment will be funded.
That conversation is better held while you can influence the outcome.
Your co-owner’s planning matters too
The issue becomes more complicated where several pensions jointly own a property.
You may have sufficient liquid investments elsewhere, but a fellow owner’s family may not. Their death could create pressure for a buyout or sale, even if your own arrangements are well prepared.
Whether that leads to a transaction will depend on the ownership agreement, scheme rules and available funding. It is not an automatic consequence.
Nevertheless, business partners should understand what would happen if one owner died. Who could buy their interest? How would it be valued? Where would the money come from?
These belong alongside the other succession questions you ask about the business.
Structure matters, but it is not a shortcut
A SSAS may offer more flexibility than separate SIPPs because assets can be held within a common trust.
Depending on its rules and members’ interests, there may be scope to adjust how cash and property are allocated without selling the building.
But this is not permission to move value freely between members, nor does it remove the tax liability. Any arrangement needs appropriate advice, fair valuations and administrator agreement.
The useful question is not simply whether you have a SIPP or SSAS, but how your particular scheme would respond to a death.
Treat liquidity as part of succession planning
Start by reviewing how much of your pension is tied up in property and what readily available funds could meet a liability.
Then bring your financial planner, accountant, solicitor and pension administrator into the same conversation. Consider cash reserves, co-ownership agreements, insurance and whether any restructuring is appropriate.
Pensions remain valuable retirement vehicles. These changes do not make commercial property an unsuitable investment, but they do strengthen the case for planning beyond investment returns and tax relief.
A sound succession plan should explain not just who inherits the wealth, but how the bills are paid without putting unnecessary pressure on the business.
Tax treatment depends on individual circumstances and may change. Investments can fall as well as rise. This article provides general information, not personalised advice.
Key takeaways
- From 6 April 2027, most unused pension funds and pension death benefits will be included when calculating a deceased person’s estate for inheritance tax purposes – a significant change for owner-directors who hold commercial property inside a SIPP or SSAS.
- Inheritance tax attributable to pension benefits will normally be due by the end of the sixth month after the month of death. Because commercial property cannot be sold quickly, this timetable creates a genuine liquidity problem for pension schemes whose main asset is a building rather than cash or investments.
- HMRC has confirmed that the option to pay inheritance tax over ten annual instalments will not apply to pension-held property in the same way it does to some directly owned assets – making the assumption of a long payment window dangerous.
- Where several pensions jointly own a property, one owner’s death can create pressure on all co-owners. Even if your own pension holds sufficient liquid assets, a fellow owner’s estate may not – and their family may need to sell their share at a time not of your choosing.
- A SSAS may offer more flexibility than separate SIPPs because assets can be held within a common trust, but this does not remove the tax liability or allow value to be moved freely between members. The useful question is how your specific scheme would respond to a death, not simply whether you have a SIPP or a SSAS.
