SIPPs for Sophisticated Investors: Permitted Investments, Borrowing, and Commercial Property

The Self-Invested Personal Pension (SIPP) is the most flexible personal pension structure available to UK individuals. Unlike a conventional personal pension — where the scheme trustees determine the investment policy and members have limited or no choice over specific investments — a SIPP gives the member (or their chosen investment manager) full control over the investment of pension assets, within the rules set by HMRC and the FCA.

This flexibility makes SIPPs particularly valuable for sophisticated investors who want to hold unusual assets, manage their own portfolio, or use their pension to purchase commercial property for use by their own business. It also makes SIPPs subject to specific rules about what can and cannot be held — rules that, if misunderstood, can result in significant tax charges.

This guide covers the key rules for SIPP investment, the specific complexities of commercial property, borrowing within a SIPP, charges, and the comparison with the Small Self-Administered Scheme (SSAS).

What is a SIPP?

A SIPP is a personal pension registered with HMRC under Part 4 of the Finance Act 2004. The SIPP operator (typically a specialist pension administrator or financial institution) acts as trustee and is responsible for maintaining the scheme's registered status. The member, through the SIPP, invests their pension contributions and accumulated funds in the assets they choose.

Tax treatment mirrors that of conventional pensions: contributions receive income tax relief at the member's marginal rate (basic rate relief claimed by the scheme, higher-rate relief claimed by the member through self-assessment). Investment growth is free from income tax and capital gains tax within the scheme. Benefits are taken in the same way as any other personal pension — income drawdown, annuity purchase, or lump sums.

Permitted Investments

HMRC divides potential SIPP investments into "standard investments" (all permitted) and investments that require specific HMRC approval or are subject to tax charges. The overriding framework is that "taxable property" — assets that HMRC specifically prohibits — results in an unauthorised payment charge of 40% (plus a potential 15% surcharge). Understanding what constitutes taxable property is therefore critical.

Permitted standard investments include:

• Listed equities and ETFs: shares listed on recognised stock exchanges globally, unit trusts, OEICs, and ETFs are all permitted without restriction. This is the vast majority of what most SIPP investors hold.

• Corporate and government bonds: fixed income securities are straightforward permitted investments.

• Commercial property: UK and overseas commercial property (offices, warehouses, retail units, surgeries, industrial units) is permitted. There are specific rules around connected party transactions (see below).

• Cash: bank and building society deposits within the SIPP are permitted. SIPP cash typically earns interest (the rate offered varies by provider).

• Unlisted shares: shares in unlisted companies (not listed on a recognised stock exchange) are permitted in principle but with significant caveats. The investment must not result in the SIPP owning "taxable property" indirectly through the unlisted company. In practice, unlisted shares in trading companies are typically acceptable; unlisted shares in companies that hold residential property or other taxable property are not.

• Gold bullion: investment-grade gold bullion (minimum fineness 995/1000) is explicitly permitted. This is one of the more unusual but clearly defined permissions.

• Loans: the SIPP can make loans to third parties (not to the member or connected persons, who are prohibited borrowers from the SIPP).

Taxable property — prohibited investments:

HMRC defines taxable property as:

• Residential property: any dwelling (house, flat, holiday cottage, buy-to-let property) held directly by the SIPP is taxable property. This prohibition is absolute and applies regardless of whether the property is available for private use or is commercially let.

• Tangible moveable property: this broad category covers cars, motorcycles, boats, aircraft, wine, whisky, artwork, antiques, jewellery, coins, stamps, and similar assets. If the SIPP holds tangible moveable property, an unauthorised payment charge applies.

• Connected-party residential property or tangible moveable property held via an unlisted company would also expose the SIPP to charges.

The 40% unauthorised payment charge is severe and can be compounded by the 15% surcharge if the unauthorised payment represents 25% or more of the fund value. Inadvertent prohibited investments — for example, an unlisted company that acquires a residential property — can be disastrous.

Commercial Property in a SIPP: The Opportunity and the Complexity

Commercial property is one of the most compelling SIPP investment categories for business owners. A business owner can cause their SIPP to purchase commercial premises that their business then occupies as a tenant, paying commercial rent to the SIPP. The rent received by the SIPP is tax-free within the pension. On retirement, the property can be sold within the SIPP or used to fund income drawdown.

This structure effectively allows a business owner to:

• Fund pension savings with pre-tax income (through employer contributions)
• Own their business premises in a tax-efficient wrapper
• Receive rent that grows their pension fund without income or CGT
• Benefit from commercial property appreciation within a tax-sheltered environment

Key rules for SIPP commercial property:

• The purchase must be at open market value (an independent valuation is required for connected-party transactions)
• Rent must be at open market rental levels (again, independent valuation if renting to a connected business)
• The SIPP can purchase property jointly with third parties (including the member personally — but the member's share is outside the pension and not tax-sheltered)
• The SIPP can borrow up to 50% of the net value of the pension fund at the time of borrowing for property purchase (see below)

Stamp Duty Land Tax (SDLT): the SIPP is a legal entity (trust) and is subject to SDLT on commercial property purchases. SDLT rates for commercial property are lower than for residential property: 0% on the first £150,000, 2% on £150,001–£250,000, and 5% above £250,000 (as of 2026, subject to any policy changes).

VAT on commercial property: commercial property can be elected to be subject to VAT (an "option to tax"). If the property is subject to the option to tax, rent receipts and sale proceeds will carry VAT. SIPPs can register for VAT separately from the SIPP operator, but this requires careful administration. VAT paid on purchase of a VAT-elected property can be reclaimed if the SIPP is registered for VAT and makes taxable supplies — but the mechanics require expert handling.

Borrowing Within a SIPP

SIPPs can borrow up to 50% of the net value of the pension fund. This borrowing power is most commonly used to fund commercial property purchases where the property value exceeds the available cash in the SIPP.

Example: a SIPP has £400,000 in assets. It can borrow up to £200,000. Total purchasing power for a commercial property is therefore £600,000 (before SDLT and legal costs).

The borrowing must be from a genuine third-party lender at commercial terms — it cannot be from the member or connected persons. Most SIPP-specialist lenders offer commercial property mortgages to SIPPs, though lending criteria, loan-to-value ratios, and interest rates reflect the specific nature of SIPP lending.

Leveraged investing within a pension amplifies returns in rising markets but also amplifies losses in falling markets. Borrowing within a SIPP should be considered carefully in the context of the member's overall financial position and proximity to retirement.

SIPP Charges: What to Budget For

SIPP charges vary significantly between providers and between standard platform SIPPs (which allow listed investments but not commercial property) and "full SIPPs" (which allow the full range of permitted investments including commercial property).

Typical charges for a full SIPP include:

• Annual administration fee: £500 to £2,000+ per annum depending on complexity
• Property purchase fee: £1,000 to £2,500 one-off
• Annual property-related fees: £500 to £1,500 depending on administration required
• Borrowing arrangement fee: lender-specific

Investment platform fees are additional. These charges must be weighed against the tax benefits of the structure.

SSAS: The Alternative for Business Owners

The Small Self-Administered Scheme (SSAS) is a trust-based occupational pension scheme with up to 11 members (typically company directors and senior employees). Key differences from a SIPP:

• The SSAS can make loans to the sponsoring employer: up to 50% of the SSAS fund can be lent back to the business, at commercial interest rates, for up to 5 years. This provides a flexible source of business finance. SIPPs cannot lend to connected persons.
• The SSAS is controlled by the trustees (the members themselves), giving more flexibility in administration.
• SSAS requires more ongoing administration and professional fees than a platform SIPP, but the loan-back provision can be very valuable for business owners.

The SSAS is generally better suited to owner-managed business owners who want pension borrowing flexibility. The SIPP is better for individuals who primarily want investment flexibility without the employer-lender relationship.

Pension rules are highly technical and subject to ongoing change. The post-LTA framework and the forthcoming pension IHT reforms from 2027 add further layers of planning complexity. This article does not constitute financial or pensions advice.

How Global Investments Can Help

Our advisory team helps HNW individuals — including business owners considering commercial property SIPPs and sophisticated investors evaluating permitted investment options — navigate the complex rules around SIPP investment. We work with specialist SIPP administrators and pension advisers to ensure your pension structure is efficient, compliant, and properly integrated with your overall financial plan.

Contact our team to discuss SIPP and SSAS options in the context of your business and retirement planning.