IHT and pensions: 5 ways to prepare for changes to commercial property SIPPs

As the nation continues to digest and scrutinise the contents of the 2025 Autumn Budget, it is worth revisiting the changes announced in 2024, which introduced significant reform to UK Inheritance Tax (“IHT”).

While much attention has focused on the changes to Agricultural Relief and Business Relief from April 2026 and the farmers’ protests, which arguably resulted in the recent U-turn, there were also major changes announced for IHT and pensions – taking effect from April 2027.

The 2024 Autumn Budget marked a clear departure from years of favourable IHT treatment for pensions. This blog outlines what these changes mean for business owners and private clients alike who have unused pension funds, with a particular focus on those who hold commercial property within a Self-Invested Personal Pension (“SIPP”).

What is a SIPP?

A Self-Invested Personal Pension (“SIPP”) is a tax-efficient UK pension that gives you greater control over how your retirement savings are invested. Unlike many standard personal pensions, a SIPP offers access to a broad range of investment options, including shares, collective funds and commercial property. Contributions benefit from tax relief, and the money is typically accessible from age 55, increasing to age 57 from 2028.

How changes to IHT and pensions will impact Commercial Property SIPPs

Under current rules, most defined contribution pensions, including those held within SIPPs and Small Self-Administered Schemes (“SSAS”), sit outside an individual’s taxable estate for IHT purposes.

For this reason, it has become common for small business owners to hold their business premises in their SIPP, as it provides an efficient way to plan for retirement, as the property generates rental income for the pension. Furthermore, on the death of the pension holder, in many cases, the property could be passed to beneficiaries free from IHT. Pensions have therefore been a cornerstone for estate planning.

From April 2027, this changes significantly – the reforms are as follows:

• Unused pension assets will form part of the deceased’s estate for IHT, which could potentially be taxed on death at up to 40%.
• Personal Representatives (“PRs”) will be responsible for reporting and settling the IHT liability, as well as working with pension scheme administrators.
• Commercial property held in SIPPs will be subject to IHT if not drawn down or sold before death, creating the risk of a substantial tax bill for beneficiaries, as this will also be taxed to IHT at up to 40%.
• If the pension holder dies after age 75, beneficiaries may also face income tax on withdrawals, leading to possible double taxation and an effective tax rate of up to 67%.

Why This Matters for SIPPs Holding Commercial Property

For many SME owners, SIPPs have been used as a smart way to pass wealth on to the next generation. The 2027 changes introduce new challenges:

1. Liquidity Issues

Commercial property is inherently illiquid. If IHT is due on death, beneficiaries may be forced into a fire sale of the property to meet the tax bill, which is often due within HMRC’s six-month deadline.

2. Business Continuity Risks

If the property is integral to the business, such as the building being used as the business’ trading premises, then a forced sale to cover the IHT liability could disrupt operations or even threaten the survival of the business.

3. Succession Planning Complexity

Previously, SIPPs offered a straightforward route to transfer commercial property outside the estate. Now, the pensions will no longer pass to the next generation IHT-free, meaning families may face 40% IHT and potentially income tax if the deceased was over 75, reducing the effectiveness of intergenerational planning.

4. Administrative Burden

The recent draft finance bill confirms that PRs will be responsible for coordinating with pension scheme administrators to calculate and pay IHT. This adds complexity and a greater administrative burden, especially where multiple pension pots or beneficiaries are involved.

5 Steps You Can Take Now to Prepare

Consider these 5 steps to prepare ahead of the changes:

1. Review pension nominations and expression of wishes forms.
2. Explore drawdown strategies to reduce unused pension assets.
3. Consider alternative structures such as Family Investment Companies (“FICS”) or Trusts for property ownership.
4. Model IHT exposure and liquidity needs to avoid forced sales.
5. Engage with financial planners, tax and legal advisers to align pension strategy with estate planning.

While there’s no need to panic, early planning is essential.  Our experts in the Private Client tax team and AAB Wealth work together to offer tax and financial advice across these areas.

How AAB Can Help

The 2027 IHT reforms represent a fundamental shift in how pensions are treated on death. For business owners and high-net-worth individuals who will be affected by these changes, this is the time to revisit pension structures, succession plans, and tax mitigation strategies. Advice should always be taken when reviewing your pension arrangements. If you would like to discuss any of the points raised above, then please do not hesitate to get in contact with Steve Roberts, your usual contact or one of our experts in the Private Client tax team or AAB Wealth.