John Clamp, chartered financial planner at Bowmore Financial Planning, warns that extending inheritance tax to pensions from April 2027 could trigger liquidity problems for families with SIPPs invested in commercial property.
Subjecting Self-Invested Personal Pensions (SIPPs) to Inheritance Tax (IHT) could create a liquidity crisis for some of these funds as many are heavily invested in illiquid commercial property warns Bowmore Financial Planning.
According to data provided to Bowmore by the Financial Conduct Authority, 54,387 Self-Invested Personal Pension (SIPP) plans currently hold commercial property.
Bowmore warns that these illiquid assets held within pension pots could pose a serious problem for families once IHT is applied to pensions in April 2027. As IHT is normally due within six months of death, beneficiaries may struggle to sell commercial properties held within SIPPs quickly enough to raise the cash needed.
According to Bowmore, 1,357 SIPPs plans contain commercial property located abroad and 8,490 contain syndicated commercial property investments, where multiple investors own a property. Property owned overseas or in syndicates can be even less liquid that a UK commercial property that is entirely owned by a SIPP.
A payment plan for IHT can be agreed with HMRC to pay the IHT bill if the six-month deadline is missed. However, even if this is agreed, interest will accrue until the full IHT bill is paid. This extra administration and cost will put further pressure on beneficiaries into accepting “fire-sale” prices on commercial properties in SIPPs in order to attract a buyer for the commercial property.
John Clamp, Fellow of the Personal Finance Society and Chartered Financial Planner at Bowmore Financial Planning, says “Commercial property can be very slow to sell but in the past that has been less of a problem as there was no IHT bill to pay on property held in a pension.”
“That changes in 2027 and investors will have to establish whether the type of commercial property that they hold in their SIPP is sufficiently liquid.”
Bowmore explains that selling property within a SIPP can be particularly complex because the legal owner of the asset is the SIPP provider, not the pension holder. This can add delays to an already lengthy disposal process.
John Clamp says, “Introducing IHT on pensions fundamentally changes the risk profile of holding commercial property inside a SIPP. These assets were never designed to be accessed quickly, and with the changes to IHT rules families could suddenly find themselves trying to raise a six-figure tax bill without the liquidity to do so.”
“The combination of SIPP ownership structures, slow-moving commercial property markets and the new inheritance tax rules has the potential to create a perfect storm. Anyone with illiquid assets in their pension needs to review their estate planning before these rules come into force.”
