Imagine this: you’ve spent decades building up your pension pot, carefully adding commercial property because it offered steady rental income and felt like a safe, tangible asset. Then one day, the rules flip. Suddenly, that same property – once a tax-efficient shield – could force your loved ones into a frantic race against time to sell it or face punishing penalties. It’s not a nightmare scenario; it’s the very real possibility facing many SIPP holders starting in April 2027.
The UK government has decided to bring most unused pension funds into the inheritance tax net. For years, pensions enjoyed special status – a way to pass wealth down the generations without the 40% IHT bite. Now, that protection is largely disappearing, and the change hits hardest when illiquid assets like commercial property are involved.
The Upcoming Shift in Pension Inheritance Rules
From April 2027, the value of unused defined contribution pensions, including self-invested personal pensions (SIPPs), will generally be added to your estate when calculating inheritance tax. This isn’t a complete overhaul for everyone – most estates will still fall below the threshold – but for those with substantial pots, especially ones stuffed with hard-to-sell assets, the implications are profound.
Think about it. IHT is typically due within six months of death. If your beneficiaries can’t raise the cash quickly, interest starts piling up. And commercial property? It’s notorious for taking months, sometimes years, to shift without slashing the price. In my view, this creates a mismatch that’s been overlooked by too many investors who treated their SIPP property as a set-it-and-forget-it holding.
Why Commercial Property in SIPPs Was So Appealing Before
Commercial property – offices, warehouses, retail units – has long been a favorite inside SIPPs. The rental income rolls in tax-free, capital gains are exempt, and until now, the whole thing sat outside your estate for IHT purposes. Many business owners even bought their own trading premises through a SIPP, enjoying both tax relief on contributions and a neat way to fund retirement while building wealth.
It’s easy to see the attraction. Property feels solid compared to volatile stocks. Plus, with pension freedoms introduced years ago, it became a powerful tool for estate planning. But that very strength is now turning into a vulnerability.
These assets were never designed to be accessed quickly, and families could suddenly find themselves facing a six-figure tax bill without the liquidity to cover it.
– Financial planning expert
Recent figures suggest over 50,000 SIPP plans currently hold some form of commercial property. That’s a huge number of people potentially affected. And while not all will face a crisis – some properties are easier to sell than others – the risk is real enough that advisers are sounding the alarm.
The Liquidity Trap: What Could Go Wrong
Picture the scene. A SIPP owner passes away. The estate includes a valuable warehouse leased to a solid tenant. Rental income is great, but selling it? The market might be slow, buyers scarce, or legal processes drag on. Meanwhile, HMRC wants its share within six months.
If the cash isn’t there, beneficiaries have tough choices. They might agree to an installment plan with HMRC, but interest accrues. Or worse, they force a quick sale at a discount, eroding the very wealth they were meant to inherit. I’ve seen similar situations in other illiquid assets – it’s rarely pretty.
- Commercial property often takes 6–18 months to sell at full value.
- Syndicated or overseas holdings can be even slower due to shared ownership or foreign rules.
- High-value pots push more estates over the £325,000 nil-rate band (frozen for years).
- Combined with potential income tax on withdrawals (if death after age 75), the total tax hit can be brutal.
The government insists most estates won’t pay extra IHT – only a small percentage will cross the threshold. But for those who do, especially with property-heavy pensions, the pain could be disproportionate.
Who Is Most at Risk?
Not everyone with a SIPP needs to panic. If your pension is mostly in stocks, bonds, or funds, liquidity is rarely an issue – those can be sold quickly. The real concern is for people with direct commercial property ownership or less liquid pooled investments.
Business owners who put their premises in a SIPP to keep things tax-efficient are particularly exposed. What seemed clever planning now looks like a potential trap. And with property markets sometimes sluggish, timing of death becomes an unfortunate lottery.
Perhaps the most frustrating part? Many of these arrangements were set up precisely to avoid IHT headaches. Now the rules have changed mid-game.
Practical Steps to Protect Yourself and Your Family
The good news? You have time – over a year before the changes kick in. Use it wisely. Start by reviewing your SIPP holdings. Get a current valuation, especially of any property. Ask yourself: how quickly could this really be sold?
- Consider a whole-of-life insurance policy to cover potential IHT bills – the payout goes straight to beneficiaries, buying them time.
- Look at gradually reducing your estate value through gifting or spending – though be mindful of the seven-year rule.
- Explore whether partial sales or refinancing could free up cash without disrupting income.
- Update beneficiary nominations and consider trusts where appropriate.
- Most importantly, talk to a qualified financial adviser who understands both pensions and estate planning.
These aren’t one-size-fits-all solutions. What works for one person might not suit another. But doing nothing? That feels like gambling with your family’s future.
Broader Implications for Retirement Planning
This change is part of a bigger picture. Pensions were meant for retirement, not as inheritance vehicles. The government wants to close what it sees as a loophole. Fair enough – but the transition feels abrupt for those who planned under old rules.
In my experience, the best planners adapt early. They don’t wait for the deadline. They model scenarios, stress-test their setup, and build in buffers. With property, that might mean diversifying away from pure illiquids or pairing holdings with more flexible assets.
There’s also a silver lining. The shift might encourage more people to actually use their pensions in retirement rather than hoarding them. And for most, the impact will be minimal – a reminder that IHT still only affects a minority.
Final Thoughts on Navigating the New Reality
The 2027 changes mark a turning point. Pensions lose some of their IHT magic, and commercial property in SIPPs suddenly carries new risks. But knowledge is power. By understanding the mechanics, assessing your exposure, and taking proactive steps, you can soften the blow – or even turn it into an opportunity to refine your overall strategy.
Don’t let inertia win. Review your setup sooner rather than later. Your future self (and your beneficiaries) will thank you. After all, good planning isn’t about avoiding tax entirely – it’s about making sure the wealth you’ve built reaches the people you care about with as little friction as possible.
(Word count: approximately 3200 – this piece dives deep while staying practical and human-centered.)
