Case study: Buying commercial premises for a partnership with a pension fund

This case study looks at how two business partners approached a premises move using a pension structure alongside a commercial property financing plan. It highlights practical issues that can arise when a partnership needs to buy commercial premises—particularly around financing, timing, and how the business structure can affect what’s possible.

Note: This is an illustrative case study based on the client’s circumstances. Pension and mortgage rules are complex and depend on individual facts, so outcomes will vary.

The starting point: outgrowing existing premises

Brian and Sally were partners in a light engineering firm. By 2007, their business had outgrown its existing premises and they began searching for a replacement unit.

They identified a suitable commercial property priced at £200,000 plus £35,000 VAT. For commercial buyers, VAT can materially affect the cash required at completion, so it became a key part of the planning.

At the same time, they were thinking about personal risk. Brian was 50 and Sally was 48, and they were concerned about taking on long-term debt at that stage of life.

Financing concerns: debt, tax relief and security

Their initial position involved a commercial mortgage. They were considering terms described as Base Rate + 2% over 15 years.

However, two concerns quickly became central to their decision-making:

• Tax relief may be limited: in many cases, the tax benefit of servicing borrowing depends on the structure of the business and the nature of the costs. They were mindful that relief might not apply to the full cost of repayments in the way they expected.
• Security requirements: the bank required security over their home as well as the business premises, increasing the risk profile if the business faced financial pressure.

They wanted a plan that reduced the likelihood of being trapped by long-term repayments if their ability to work was affected by ill-health.

Partnership structure: why the pension route mattered

Because Brian and Sally operated as a partnership (rather than a limited company), the pension approach needed to fit the rules available to them.

In this scenario, the partnership status meant they couldn’t use a SSAS at the outset. Instead, they used a Self-Invested Personal Pension (SIPP) as the mechanism to support the commercial property purchase.

Caution: Pension rules and what’s permitted can depend on the exact facts and scheme type. Any pension-based property plan should be reviewed with qualified pension and tax advisers.

Building the pension funding plan

The planning process began with understanding their existing pension position and how much they could contribute.

Key inputs included:

• Annual earnings from the previous tax year: £30,000 each
• Existing pension balances: Sally £40,000, Brian £80,000
• Equity available from the sale of their existing premises: £50,000

Pension contributions and tax relief

They funded net contributions of £24,000 each into their SIPPs using the equity released.

With tax relief applied, the contributions grossed up to £30,000 each, increasing the total pension value available for the next stage.

Transferring existing pension funds

They also transferred their existing pension plans into the SIPP arrangement. After this, the combined pension funds were:

• Sally: £70,000
• Brian: £110,000
• Total: £180,000

Using pension borrowing to fund the purchase

Once the pension funds were in place, the next step was to consider how pension borrowing could support the property purchase.

In this case, the pension borrowing rules allowed borrowing up to 50% of the fund value. With a combined fund value of £180,000, that created capacity for additional borrowing of up to £90,000.

To allow for transaction costs and to create practical “headroom”, they borrowed £55,000, including a VAT loan of £35,000.

Timing the VAT element

VAT can create a short-term cash-flow challenge because it is typically due at completion. Here, the structure was aligned so that the VAT element was only borrowed for a short period—by timing the transaction to reduce the duration of the VAT-related borrowing.

For commercial buyers, this is often where the detail matters: the overall plan may look sensible on paper, but cash-flow timing can determine whether it feels manageable in practice.

Outcome: reducing long-term borrowing exposure

The purchase initially implied a larger borrowing requirement over a longer term. Instead, the pension-funded approach supported a different outcome.

Rather than being committed to £200,000 over 15 years, they were able to clear the borrowing within two years.

After the repayment, the business then directed rent paid from the premises back into the pension fund, supporting the ongoing pension strategy.

Important: The exact mechanics depend on the final structure and documentation, and should be confirmed with the relevant advisers.

Aligning the business structure over time

A further factor in the case was the business structure itself.

Their accountant had been encouraging incorporation for some time. After the premises purchase plan was underway, they took advice on incorporating the business.

Once incorporated, it became possible to revisit the pension structure. They then transferred the SIPP to a Small Self-Administered Scheme (SSAS) to reduce running costs.

This illustrates a common point in commercial planning: the “best” structure at the start can evolve as the business changes, but the early steps still need to be compatible with what’s planned later.

Key takeaways from the case

While every situation will differ, this case illustrates several themes that are common in commercial premises purchases involving pension structures:

• Partnership status can affect which pension wrapper is available at the start of a plan.
• VAT is often a major driver of cash-flow requirements in commercial property transactions.
• Borrowing strategy and timing can materially influence the overall cost and risk profile.
• Business incorporation can change what pension options are available later, enabling a more cost-effective structure.

Summary

Brian and Sally’s premises purchase demonstrates a structured approach to funding commercial property as partners. By using a SIPP to support the purchase, managing VAT-related borrowing through timing, and later aligning the business and pension structures, they moved from a longer-term debt plan toward a faster repayment outcome.

This case study is intended to show how commercial property financing considerations can be integrated with pension planning when a partnership needs to buy premises and manage risk around long-term commitments.