Your Children Inherit A Warehouse They Cannot Sell

If you want to know what happens to property in your SIPP when you die, the short version is this: the building does not leave the pension, but the people who inherit it may face a tax bill with a deadline long before they can turn any of it into cash. A commercial property held inside a self-invested personal pension — a warehouse, a shop, an office, the unit your own company trades from — is one of the least liquid things a family can inherit, and the tax rules do not slow down to accommodate that.

This is not a reason to panic, but it is a reason to plan. The property stays wrapped inside the pension. The beneficiaries inherit an interest in it rather than the bricks themselves, and the scheme's trustees or administrator have several ways to deal with it. The difficulty is timing: a building can take many months to sell, while some tax deadlines are measured in months from the date of death, and the two do not line up.

This page walks through what actually happens to the property, why the liquidity problem is the heart of it, what changes when the tenant is your own family business, and what a family can do in advance so that nobody is forced into a rushed sale in the worst year of their lives.

The short answer: the building stays put, the deadline does not

A SIPP is a pension, and the commercial property inside it belongs to the pension scheme, held by its trustees, not to you personally. Death does not change that ownership overnight. What death changes is who the benefit of the pension is directed to, and how — and that is where the property becomes complicated, because you cannot slice a warehouse into percentages and post it to three beneficiaries.

So the practical position is that the beneficiaries inherit a share of the value of the pension, which happens to be tied up in a single, indivisible building. Whether they receive money, an income, or a transfer of the asset into their own pension depends on decisions the trustees make, guided by the scheme rules and by any expression of wish the member left. Meanwhile, any inheritance tax that becomes due has its own timetable, and it is not patient.

What happens to the property when you die

When a SIPP member dies, the trustees or scheme administrator take control of directing the death benefits. For a fund that owns property, that usually means valuing the building, confirming who the beneficiaries are, and then choosing between a small number of routes for dealing with the asset.

Because the property is illiquid and singular, the trustees cannot always give each beneficiary exactly what a spreadsheet would suggest. If three children are to share equally but the only asset is one building, someone has to decide whether to sell it and split the proceeds, keep it and share the rent, or move it into one child's pension and compensate the others from any other funds. These are real decisions with tax and family consequences, which is why an expression of wish that says what the member actually wanted carries so much weight.

It is worth being clear that this is a very different situation from inheriting a house, where ownership can pass and the property can be lived in or sold at the family's own pace. Here the asset is locked inside a pension wrapper, subject to pension rules, and the family's freedom of action is narrower.

The liquidity problem and the tax deadline

The single hardest feature of a SIPP that owns a building is that the value is real but you cannot spend it quickly. Commercial property is slow to sell at the best of times; forced to sell against a deadline, a family may have to accept a lower price, which is exactly the outcome good planning tries to avoid.

Set against that slowness is the tax timetable. Inheritance tax is generally due by the end of the sixth month after the month of death, and interest starts to run from then on anything unpaid. For assets like land and buildings, HMRC does allow the tax to be paid in ten annual instalments rather than all at once, which softens the immediate demand — but interest is normally charged on the outstanding balance, so spreading the payments is not free, and it does not make the liquidity problem disappear.

Source: HMRC guidance, Pay your Inheritance Tax bill, GOV.UK — including the payment deadline and the option to pay tax on some land and buildings in instalments.

The mismatch is the whole problem in one sentence: the tax can fall due within months, while the asset that would pay it can take far longer to sell. That is why families in this position so often end up either raising money from elsewhere or accepting a quick, discounted sale. It sits alongside the other deadline-driven bills an estate can face, such as the final tax bill of a self-employed person who has died, and the same lesson applies: know which deadlines exist before you need to meet them.

When the tenant is your own family business

A very common reason to hold commercial property in a SIPP is that the member's own company is the tenant. The pension owns the unit; the family business rents it and pays rent into the pension. It is a tidy arrangement in life. In death it can pull hard in two directions.

The business needs continuity of premises — it cannot have its trading base sold out from under it while it is grieving the person who often ran it. The beneficiaries, on the other hand, may need the building sold to raise cash, whether for a tax bill or because an income stream is no different use to them than a lump sum would be. Those two needs are in tension, and if nobody has thought about it in advance, the tension surfaces at the worst moment.

There are rules to respect here, too. Where a connected party such as the family business is the tenant, the rent has to be on genuine commercial, arm's length terms, and that requirement continues after the death. The trustees cannot simply let the rent lapse to help the business, nor sell the building to the family at a favour price. Any purchase of the property out of the pension by the family or the business must be at market value. A written plan agreed while everyone is alive — covering the rent, whether the business or a family member might buy the building, and how any tax would be funded — is worth far more than a scramble afterwards, and it protects both the business and the beneficiaries.

The three routes out for the beneficiaries

In practice the trustees have three main ways to deal with the property, and the right one depends on the family's needs and the tax position.

• Sell the building. The proceeds move into the pension as cash, which can then be paid out or drawn by the beneficiaries under the normal death benefit rules. This solves the divisibility problem but exposes the family to the slow sale, and to whatever price the market gives on the timescale required.
• Transfer it in specie into a beneficiary's own pension. The building itself is moved into a beneficiary's SIPP without being sold, keeping it inside a pension wrapper. This suits a beneficiary who wants to keep the asset — often one already involved in the family business — but it does not raise any cash, so it does not help with a tax bill on its own.
• Keep it and pass on the income. The pension retains the property and the beneficiaries receive the rent as beneficiary drawdown. This preserves the asset and the income stream, and can work well where the tenant is stable, but it ties the family to being landlords of a single building whether they want to be or not.

None of these is automatically right. The point of understanding them in advance is that a member can leave a clear expression of wish pointing the trustees toward the outcome that actually fits the family, rather than leaving them to guess between three imperfect options after the fact.

Inheritance tax from April 2027, and income tax as well

Until now, unused pension funds have generally sat outside a person's estate for inheritance tax, which is part of why pensions have been used to hold assets like commercial property in the first place. That is changing. From 6 April 2027 unused pension funds and certain lump sum death benefits are brought into the estate for inheritance tax, taxed at the standard rate above the available nil-rate band, with the spouse and civil partner exemption preserved so that anything passing to a husband, wife or civil partner remains exempt.

Source: HM Treasury and HMRC policy paper, Inheritance Tax on unused pension funds and death benefits from 6 April 2027, GOV.UK. The standard inheritance tax rate above the available nil-rate band is 40%.

For a SIPP that owns a building, this sharpens the liquidity problem rather than creating a new kind of it: a bigger potential tax bill, still with a slow-to-sell asset behind it. It is worth knowing what the change does not touch as well as what it does. Death in service benefits from registered schemes stay outside it, as explained in how death in service is excluded from the 2027 change, and a defined benefit survivor's pension is not caught either, covered in why a widow's pension from a final salary scheme is not affected.

There is a second tax to keep in view. Quite apart from inheritance tax, the income tax treatment of an inherited pension depends on the member's age at death: broadly, where a member dies at 75 or over, what the beneficiaries draw is taxed as their income at their own marginal rate. So a family can face both an inheritance tax charge on the fund and income tax as they draw it down — two different taxes on the same building. That double exposure is precisely why funding the bill needs thought before it arrives.

What to put in place now, and where the nations differ

The recurring lesson is that the problems here are foreseeable, which means they are plannable. A few things are worth doing while there is time. Keep the expression of wish current and specific, so the trustees know which of the three routes you would want. Agree, in writing and with the business, what should happen to the tenancy and whether anyone might buy the building. And think about where the cash to meet a tax bill would come from, so the answer is never "sell the building in a hurry".

Life cover written into trust is one of the cleanest ways to provide that cash, because a policy in trust can pay out quickly, outside the estate, to the people who need to settle a bill — turning an illiquid problem into a solvable one. If your family's wealth is concentrated in a building inside a pension, that is a gap worth pricing. You can get life insurance quotes and ask an FCA-authorised broker how cover held in trust could fund a future liability. Where two generations depend on the same asset, our guide to funding a teenager and a parent at the same time covers the wider squeeze.

On the law around administering the estate, the procedures differ across the UK. Confirming the death, valuing the estate and obtaining the authority to deal with it — the grant of probate in England and Wales, confirmation in Scotland, and the separate process in Northern Ireland — follow different routes, and the timing of each affects how quickly a family can act on the property. The pension death benefit rules themselves are UK-wide, but the estate machinery around them is not, so take local advice on the process where the member lived. You can read the rest of this topic in our guide to pensions, nominations and death benefits, and on the timing traps in how the date of death changes which benefits apply.

Frequently asked questions

What happens to a commercial property held in a SIPP when the member dies?

The property stays inside the pension and the beneficiaries inherit an interest in it rather than the building itself. The trustees can sell it, transfer it into a beneficiary's own pension arrangement, or keep it and pass on the rental income, depending on the scheme rules and the family's needs. An expression of wish left by the member helps them choose the route that fits.

How quickly does inheritance tax have to be paid?

Inheritance tax is generally due by the end of the sixth month after the month of death, and interest runs from then. HMRC allows tax on some land and buildings to be paid in ten annual instalments, but interest is normally charged, so the liquidity problem does not disappear. Planning how the bill will be funded matters more than relying on selling the building in time.

What if the tenant is the family business?

That is common and it complicates matters: the business needs continuity of premises while the beneficiaries may need the property sold to raise cash. The rent must stay on commercial, arm's length terms, and any purchase out of the pension must be at market value. A written plan agreed in advance, covering rent, a possible purchase and how any tax is funded, is worth far more than a rushed sale.