Nearly 1 million free-resource-downloads and-counting
How to Calculate Pension Contribution Needed for a Property Purchase by a SIPP

How to Calculate Pension Contribution Needed for a Property Purchase by a SIPP

We recently did an article on using a SIPP to buy commercial property, which is a common area tested in the AF2 business financial planning paper.  Another related question that often comes up in this exam is how much extra pension contribution is needed to fund a purchase. 

This has been adapted from our AF2 calculation workbook:


Henry is the sole director-shareholder of his limited company.

Henry has a SIPP, which he wishes to use to buy the business premises that his business is currently renting. The current value of the property, along with associated costs of purchase, is £540,000.

Henry’s SIPP is worth £250,000. He has no other pension plans and makes no personal contributions to the SIPP.

If the maximum amount is borrowed by the SIPP to buy the business premises, calculate the additional gross pension contribution required to allow the purchase to go ahead.

A common CII AF2 question is about using a SIPP to buy commercial property. Here's how to calculate the extra pension contribution required to make a purchase. Click To Tweet



The SIPP is allowed to borrow up to 50% of the net value of the fund and the amount needed to buy the property is £540,000.

The fund needed after the maximum amount of borrowing is £540,000 x 2/3 = £360,000.

From this, we can deduct the existing fund value of £250,000.  The contribution needed is, therefore, £110,000.

We can check this by calculating £250,000 + £110,000 = £360,000 x 50% = £180,000

£180,000 + £250,000 + £110,000 = £540,000

Remember the SIPP now owns the property and rents it back to Henry’s business.  This must be a commercial rent.

Henry gets tax relief on the rent just as he would if he were paying rent to any landlord.  The SIPP then uses the rent to cover mortgage repayments and any other costs.  As the rent builds up any excess can be used for other investments for diversification.

If Henry wants to sell the property when he retires, this can be done with no CGT consequences, and he can use the proceeds to fund his retirement income.  Or he could simply keep the property in his SIPP and continue to receive rent from a new tenant.

Grab the resources you need!

If you’re studying for your CII AF2 exam, and you’re wanting to feel prepared on exam day, you’ll need to practise applying the knowledge. Grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF2 calculation workbook taster now!

Click here to download our free calculation workbook taster for CII AF2