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Pension schemes frequently invest in commercial property; this is especially the case for specialised vehicles such Small Self-Administered Schemes (“SSASs”) and Self-Invested Personal Pensions (“SIPPS”).   There are significant advantages to them investing in this asset class, including:

  • future increases in the property’s value may be sheltered from capital gains tax;
  • rental income received by the pension scheme is tax-free;
  • any rent paid by the employer is deductible for corporation tax purposes; and
  • purchasing property from an employer may allow an injection of cash into the business.

How can Vialex help?

When investing in commercial property there are specific requirements which must be met under pensions, trust, and tax law.  Our pensions team will work with commercial property lawyers to ensure that these requirements are taken into account in the sale or purchase of commercial property, leases, and for any associated borrowing and security work.

Commercial Property Purchases and Sales

Where trustees are buying from or selling to “connected parties” any such purchase or sale of commercial property must be carried out as an arms’ length transaction and for an open market value as determined by an independent valuer. 

There can be problems with certain types of commercial property.  Pension schemes cannot acquire moveable property, which can be an issue for hotels, public houses, or restaurants where there may be stock or furnishings involved.  Similarly, subject to some exceptions pension schemes cannot acquire property with a residential element.  In both cases, schemes could incur considerable tax charges if they fall foul of these restrictions.  Our pensions team can assist commercial property lawyers in determining whether a transaction would be permissible or in helping structure it in such a way that it may proceed.


HM Revenue and Customs require that any commercial property acquired should be leased so as to provide pension schemes with income.  Again, if the property is leased to “connected parties” it must be done on an arms’ length basis and at an open market rent as determined by an independent valuer.  We can assist commercial property lawyers to ensure leases comply with the relevant rules.

Borrowing and security work

For various reasons, pension schemes may wish to borrow monies from a financial institution to finance the acquisition of property in whole or in part.  There are HM Revenue and Customs limits on the amounts that schemes may borrow.  We can assist in confirming whether trustees have the power to borrow and to grant security to the lender over their scheme’s assets and whether the proposed borrowing is within those permitted limits. We can also review the loan and security documentation to ensure that these comply with the relevant rules, including ensuring that the liability of any professional trustee is limited to the assets of the scheme concerned.

“Contingent asset agreements”

On a related note, the sponsoring employers of defined benefit, occupational pension schemes may wish to consider entering into what’s known as “contingent asset agreements” in favour of the trustees of their scheme.  This commonly takes the form of a standard security or legal charge over commercial property.  As well as helping reduce the annual levy paid by such schemes, this can improve the security of members’ benefits and provides the trustees with a valuable asset in the event of the employer becoming insolvent.  In order to benefit from the reduced levy, however, the agreement must be in line with styles provided by the Pension Protection Fund.  Our pensions team can work with commercial property lawyers to ensure that any such agreements meet this requirement and in making the relevant returns.

For further information please contact Steven Dunn or Scott Moncur (details below). 

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