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SIPP Properties and Unpaid Rent
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SIPP Properties and Unpaid Rent: The Costly Consequences of Falling Behind

The Appeal of Holding Property in a SIPP

Using a Self-Invested Personal Pension (SIPP) to purchase and hold commercial property can offer some significant tax advantages, especially when the property is leased to your own business or family-run company. Instead of rent being paid to a third-party landlord, it’s paid directly into your pension scheme. This allows:

  • The company to deduct the rent as a business expense
  • The SIPP to collect tax-free rental income
  • No capital gains tax when the property is eventually sold

But these benefits come with strict conditions, and failing to meet them can trigger serious tax penalties.

Understanding the Connected Party Rules

When a commercial property held in a SIPP is rented to someone connected to the pension holder—such as the member themselves, their spouse or civil partner, a close relative, or a company owned by the member—”connected person rules” come into play.

These rules apply when the tenant is:

  • The SIPP member or a close family member
  • A partnership including the SIPP member or their relatives
  • A company in which the SIPP member has a controlling interest (like a personal or family business)

Under these circumstances, the lease must reflect commercial, arm’s-length terms.

Market Rent and Lease Enforcement

To stay compliant, rent must be charged at full open-market value. You cannot undercharge or waive rent simply because the tenant is your own business.

HMRC expects the lease to be enforced in exactly the same way as it would be with an unrelated third party. That includes:

  • Regular rent collection
  • Rent reviews
  • Pursuing overdue payments when necessary

Letting your business use the property for free or at a discounted rate is not an option—it breaches the pension rules.

The Real Danger: Unpaid Rent and Tax Penalties

Failing to pay rent on time doesn’t just affect your pension fund’s cash flow—it can lead to harsh tax consequences.

If rent is left unpaid, it could be treated as an “unauthorised payment” under pension tax rules. This triggers the need to submit an “event report” to HMRC by 31 January following the tax year in which the unpaid rent occurred.

For example, If rent remains unpaid for the 2024/25 tax year, the event report is due by 31 January 2026.

If the rent is still unpaid by that deadline, the following charges may apply:

  • 40% unauthorised payment tax on the unpaid rent (payable by the member)
  • Up to 15% surcharge depending on the size of the unauthorised payment relative to the pension pot
  • Scheme sanction charge, typically 15%, but possibly as high as 40% (payable by the pension scheme)

These tax liabilities must be reported in the member’s Self Assessment tax return for the relevant year and paid by the usual 31 January deadline.

Key Takeaways for SIPP Property Holders

It’s crucial to remember: the property is owned by the pension scheme, not the individual member. That means the member can’t make casual decisions like skipping rent payments or offering rent holidays. Doing so can result in costly penalties that quickly outweigh the tax benefits.

Careful planning, commercial leasing terms, and prompt rent payments are non-negotiable when dealing with SIPPs and connected tenants.

Partner Note: FA 2004, s. 208; Registered Pension Schemes (Provision of Information) Regulations 2006.