Property a pension scheme may or may not invest in

  • Explain why pension schemes might want to buy property
  • Identify which types of property are available for a pension fund to invest in
  • Describe how a pension scheme can get involved with residential property
Property a pension scheme may or may not invest in

Commercial property investment by UK pension schemes has been one of their most popular strategies for decades.

Setting aside pooled property funds (unit trusts, investment trusts, REITs etc), we are discussing here direct property acquisition by pension schemes.

This is usually considered to be the domain of Sipps and Ssas's although larger occupational schemes also invest in this sector: 

But why would this be so popular?

  • Any capital growth in property values accumulates tax-free
  • Any rental income is received by the pension scheme tax-free
  • The pension scheme can register for VAT and reclaim VAT paid on purchase (or pay no VAT in the case of a transfer of a going concern)
  • If the property is occupied by your business, you are effectively paying rent to your pension rather than a landlord
  • The premises can be passed down through generations free of IHT
  • Business premises are held outside of a company meaning they are protected from creditors in the event of a company failure
  • Bricks and mortar are often considered one of the safest investment strategies in the UK

Focussing firstly on the basics, a UK Registered pension scheme can only invest in commercial property.

The exception is via a pooled fund which is a separate subject. One of the most frequently asked questions is what constitutes commercial property. Looking at the basics:

Generally Permitted

Not Permitted


Industrial property



Care Homes

Pubs and restaurants


Development land

Car Parking

Residential Property 

Holiday lets, timeshares & beach huts 

Residential ground rents 

Caravans, log cabins and other moveable property 

Leasehold property with less than 50 years remaining (deemed a "wasting asset")

There is a huge variety of options each of which is worth a mention and will hopefully help to build a picture of how this tends to work in practice. 

Shops with flats above them

The pension scheme cannot own the flat.

Either the title has to be split on purchase so the downstairs commercial element is purchased as a leasehold interest by the pension scheme and the freehold with flat is purchased by another party such as the client’s company or, where the flat is already sold on a long lease, provided the ground rent is only peppercorn (that is, nil) the pension scheme could purchase the freehold.

Job-related accommodation -  pubs with residential accommodation

Provided the accommodation is occupied by an unconnected party who must reside there under their terms of employment, the purchase is permitted. The same applies to factories with caretaker’s accommodation.

Hotels and Hotel Rooms

A purchase of a whole hotel or a share of a whole hotel is permitted.

Hotel rooms are also permitted provided the pension scheme members and connected parties do not have a right to stay in the room and the pension scheme does not own the furniture.

A number of hotel room schemes have failed over the years, but this article is not aimed at covering what is and is not a good investment.

Property at Auction

There is no problem with this apart from the logistical issues of paying for the deposit there and then and completing the purchase in 28 days which can be challenging.


Popular strategies are either purchasing farmland to let to a farmer or purchasing brownfield sites to obtain planning permission and sell-on to a developer with a significant capital gain.

This is a specialist area and some scams were in operation in recent years where land was sold in chunks to pension schemes with the promise of planning gain which had no chance of being obtained.

Sometimes the land may form part of a larger title that includes residential property such as a farmhouse. The investment can be made possible by splitting the title so the pension scheme purchases the land only.