Pensions and inheritance tax: what April 2027 means for SIPP commercial property

Pensions are joining your estate: what April 2027's IHT change means for SIPP commercial property now

For as long as most business owners can remember, a pension has sat outside the estate for inheritance tax (IHT) purposes. That is about to change. The UK pension IHT changes 2027 bring most unused pension funds, including commercial property held in a self-invested personal pension (SIPP), within scope of inheritance tax for the first time.

If you or your business owns its trading premises through a SIPP or a small self-administered scheme (SSAS), this is not something to leave until later in the year.

The change was confirmed in the Autumn Budget 2024 and given legal effect through the Finance Act 2026, which received Royal Assent on 18 March 2026. It applies to deaths on or after 6 April 2027. As commercial property is one of the least liquid assets a pension can hold, the practical impact on SIPP owners is likely to be more immediate, and more complicated, than for pensions invested in shares or funds.

What is actually changing from 6 April 2027?

Under the current rules, most unused pension funds and death benefits sit outside a person's estate when they die. This is one of the reasons pensions have become a popular way to pass on wealth, particularly for business owners who have built up value in a SIPP or SSAS over many years.

From 6 April 2027, that position changes. Unused pension funds and pension death benefits, described in the legislation as notional pension property, will be added to the value of the deceased's estate for inheritance tax purposes.

Where the total estate exceeds the available nil-rate bands, the excess is taxed at 40 per cent. Benefits paid to a surviving spouse or civil partner, and lump sums paid to a registered charity, remain exempt.

Responsibility for reporting and paying the IHT on pensions also shifts. It will fall to the deceased's personal representatives, working alongside the pension scheme administrator, rather than resting solely with the scheme. Personal representatives already report and pay inheritance tax on the rest of the estate, so pension assets will need to be brought into that same process.

Why does this hit SIPP commercial property especially hard?

Shares, cash and fund-based pension investments can usually be sold quickly to raise money if an inheritance tax bill is due. Commercial property cannot. Industry data suggests that tens of thousands of SIPP arrangements across the UK currently hold commercial property, often the very premises a business trades from, and these assets were never designed to be liquidated at short notice.

This creates a straightforward but serious problem. If a SIPP's only significant asset is a warehouse, office or retail unit, and the property's full value is added to the estate on death, the personal representatives may need to find a six-figure tax bill without ready access to cash. Selling a commercial building takes months, not weeks, and a forced or rushed sale rarely achieves the best price.

The position becomes more complicated still if death occurs after age 75. Beneficiaries drawing down inherited pension funds after that age already pay income tax at their marginal rate. Combined with 40 per cent SIPP inheritance tax on the same property, the total tax drag on a single asset can, in some circumstances, reach significantly more than half its value.

How will SIPP death benefits be treated after the change?

Not every payment from a pension is caught. Death-in-service lump sums, dependants' scheme pensions, and lump sums paid to charity are expected to remain outside the scope of the new rules. Payments to a surviving spouse or civil partner also stay exempt, which keeps the position broadly unchanged for many married couples.

What does change is how SIPP death benefits passing to children, grandchildren or other beneficiaries are treated. These have historically been one of the more tax-efficient ways to pass on wealth, precisely because they sat outside the estate. From April 2027, the value of the unused fund, including any commercial property it holds, will generally be added to the estate before the nil-rate bands are applied.

The legislation also introduces a mechanism allowing an individual to give notice to a pension scheme administrator, requiring it to pay the inheritance tax attributable to their pension directly to HMRC. Where that route is used, the scheme administrator must settle the tax within a set period once a valid notice is received.

This may help with cash flow, but it still assumes the scheme itself has liquid funds available, which is often not the case where the pension's main asset is a building.

What should SIPP property owners consider doing now?

There is no single correct answer, and the right approach depends on your wider estate, your age, and how the property is used. A few practical steps are worth working through with your adviser well before April 2027:

• Review your expression of wishes and pension nomination, so scheme administrators and personal representatives are clear on who should benefit.
• Model the likely inheritance tax liability against the value of the property and identify where the cash to pay it would realistically come from.
• Consider whether retaining the property inside the pension still makes sense, compared with extracting it as a benefit in specie or selling it and holding more liquid investments instead.
• Check whether other assets in the estate, or life cover written in an appropriate trust, could cover the liability without forcing a sale of the property.
• Get an up to date, independent valuation of the property, so any planning is based on its true current worth rather than an out of date figure.

Should you sell or extract the property now?

Selling before death, or taking the property out of the SIPP as a benefit in specie, removes the liquidity problem but creates other tax consequences, including possible income tax on the value withdrawn. 

Neither route suits every situation, particularly where the property is your trading premises and continuity of occupation matters. This is a decision to make with tax and legal advice, informed by a realistic, current valuation of what the property is actually worth.

Why does an accurate valuation matter more than ever?

Whichever route you take, everything starts with the value placed on the property. Personal representatives will need robust evidence to support the figure reported to HMRC, and beneficiaries will want to understand what the asset is really worth before deciding whether to keep or sell it. A commercial property valuation carried out to RICS standards gives that certainty.

A RICS Red Book valuation is the recognised standard for this kind of work, and understanding how a Red Book valuation differs from an estimate of market value matters when the figure will be relied on by HMRC, trustees, and beneficiaries alike. If the property is let, its lease terms will also affect its value, so it is worth having those reviewed alongside the valuation itself.

Regularly reviewing how to value a commercial property held within a SIPP, rather than relying on the figure from the original purchase or the last periodic review, puts you and your advisers in a much stronger position when the new rules take effect.

Speak to BTG Eddisons about your SIPP commercial property valuation

Our valuations team works with pension trustees, business owners, and financial advisers to provide RICS-compliant valuations of commercial property held in SIPPs and SSASs, giving you a reliable figure to plan around ahead of the April 2027 changes.

We bring more than 180 years of experience in the property sector, a proven track record of success, and consistently positive reviews from the businesses and advisers we work with. Every SIPP and every property is different, so we build a plan around your specific circumstances rather than a generic template.

To speak to one of our valuation specialists about a SIPP or SSAS commercial property, call 0330 191 8107, email [email protected], or complete the contact form on our website to arrange a consultation.