When it comes to investing via a Small Self-Administered Scheme (SSAS), there’s one golden rule: avoid residential property. HMRC imposes hefty tax penalties if a SSAS directly invests in property deemed suitable for use as a dwelling. This includes obvious residential types such as buy-to-lets, holiday homes, and aparthotels.

But what if a commercial property includes a residential element? Are there any exceptions within the SSAS property investment rules?

The answer is yes — under strict HMRC concessions, some residential use may be permitted if it forms part of a wider commercial property. Understanding and correctly applying these rules is crucial for any SSAS trustee considering such an investment.

What Counts as Residential Property?

HMRC defines “taxable property” as anything “suitable for use as a dwelling.” This includes traditional houses and flats, but also applies to properties like serviced apartments and holiday rentals. If a SSAS invests in such property, it risks punitive tax charges under the Finance Act 2004.

However, some commercial properties with associated residential elements may be allowed — provided they meet one of two specific exemptions known as Condition A and Condition B.

Common Example: Pubs with Staff Accommodation

The SSAS property investment rules can be illustrated with a  typical scenario where a pub comes with accommodation above it. Ordinarily, a staircase linking the two might make the entire property off-limits to a SSAS. But if the residential part is occupied under the right terms, the property may qualify for one of HMRC’s concessions.

Let’s explore these conditions:

Condition A

The residential accommodation must be:

• Occupied (or due to be occupied) by an employee.
• The employee must be unconnected to both the employer (tenant) and any SSAS member.
• There must be a formal contract of employment in place that requires the employee to live in the property to perform their role.

This condition is often preferred, as it’s more easily evidenced and defensible should HMRC challenge the setup.

Condition B

The accommodation must be:

• Occupied by someone unconnected to any scheme member.
• Used in connection with a business held as an investment by the SSAS.

A Word of Caution

While these concessions create opportunities, they come with real risk. If the residential space becomes vacant or the conditions are no longer met, the entire property could be deemed residential. This would trigger significant tax penalties.

That’s why a clear understanding of  SSAS property investment rules,  effective property management and detailed documentation are key. SSAS trustees must ensure that:

• The residential element remains compliant with the chosen condition.
• Contracts of employment and tenant agreements are well documented.
• Any changes in occupancy are swiftly addressed.

Final Thoughts

SSASs offer flexibility in commercial property investment, but trustees must tread carefully where residential elements are involved. By understanding HMRC’s residential concessions and managing investments diligently, SSASs can navigate this complex area while avoiding costly mistakes.

Always seek specialist advice before making any SSAS property investments — the cost of getting it wrong can be substantial.

The information in this article is accurate at the date of publication – 30th May 2025