Commercial property in pensions is not a new concept. But with the current changes in the high street more and more commercial to residential opportunities are arising. Property investors need to be sure on what is commercial and what is residential if they are to avoid significant tax charges!

Here’s a few examples as to what would be deemed residential and what would be deemed commercial in the eyes of HMRC: –

Residential Commercial with accommodation
Dwelling houses or flats Hotels
Multi dwelling house / House of Multiple Occupancy (HMO) Care homes
Timeshares & holiday lets Student halls of residence (not student flats)
Residential ‘land’ (primarily gardens
of large houses)
Hospitals and hospices
Serviced Accommodation Prisons

So, what are the penalties if residential property is held is a SSAS?  The following table outlines the charges that could arise: –

Transaction Charge Who Pays
 Purchase  Unauthorised Payment Charge is 40% of the value of the residential part of the property. Member
Scheme Sanction Charge between 15% and 40% of the residential part of the property value. Scheme Administrator
Unauthorised Payment Surcharge of 15% if value of residential part of the property purchased is greater than 25% of total value of scheme. Member
 Rent Scheme Sanction Charge of 40% on rent received or if not rent received it would be on HMRCs deemed notional rent received. Scheme Administrator
Sale  Scheme Sanction Charge of 40% on any profits made on re-sale Scheme Administrator

But there are some exceptions where residential property could be held in a SSAS: –

Job related residential property

There are two allowable circumstances:

  1. It’s occupied by an employee who is not a scheme member, with no connection to other scheme members or the employer and living there is a job requirement (e.g caretaker flat); or
  2. It’s occupied by a person who is neither a scheme member nor connected with a member and is used in connection with business premises held as an investment of the pension scheme (e.g. pub with flat above occupied by pub manager).

The important point here is that the occupant of the residential element of the property can never be the SSAS member or a relative.

Leasehold transactions relating to mixed commercial and residential

If criteria 1 or 2 cannot be met, then it’s vital the scheme buys the leasehold of the commercial element only. If it buys the freehold of the whole then a tax charge would apply, even where the leasehold is held by another party.

Commercial to residential conversion 

This is a particularly interesting area, especially in the ever-changing high street where opportunities seem apparent.


There are some good guidelines provided by HMRC on this subject and you can read them in more detail here 

If you’d like to find out how you might use your pension to grow a property portfolio call us now on 07834 600024 or email to arrange an informal chat over a virtual coffee.