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Pensions and Property Planning

Business owners typically buy commercial property from which to run their business in one of two ways. Either they purchase the property personally or the company purchases the property. There are several disadvantages with both of these routes. A third and often better way is to consider holding business premises in a pension. Advantages include:

  • You remove the property from the commercial risks of the business on day one.
  • You’ll be using a highly tax efficient structure.
  • You can use existing pension fund investments to contribute cash towards the purchase price of the property.
  • The pension fund can borrow to raise funds to help with the purchase.
  • The business pays rent for the use of the property which adds to the pension value.

In its simplest form a pension is a tax exempt fund. Contributions into the fund attract tax relief at your highest rate of tax. This provides great flexibility depending upon how the property is held prior to moving into the fund.

If a limited company owns the property: this is a common situation for business owners and the property can be moved “in specie” into the pension and attract tax relief in the company based on the element of the property transferred

Further flexibility in planning is afforded by being able to move only a percentage of the property into the fund rather all of it at one time. In this way tax relief can be limited to the amount of profit that is required to be sheltered.

A useful variant of this is where the company actually sells the property to the pension fund for cash. This can be a useful way of extracting cash from a pension without actually crystallising the fund and taking a pension.

An added benefit of transferring property out of a company and into pension is that it removes the property from the business risk.

If you own a business with commercial property and wish to understand how this planning can benefit you call 0121 704 1354.

If the business owner or spouse owns the property: In this scenario the individual can make in specie contributions of part or all of the property into the fund. This is deemed to be a pension contribution and tax relief is given on the grossed up value of the property transferred into the fund.

In this way a high earning individual can obtain tax relief on the whole value of the property. This is especially effective if done over a number of tax years in order to shelter the higher rate tax liability only.

An effective variation on this type of planning is possible for business owners who also own commercial property and are interested in tax efficient remuneration. If the director’s salary is paid into pension the company will obtain tax relief on this contribution. The pension will then use this cash to purchase the property from the director thus giving him his money back.

If you are interested in how this planning may benefit you call 0121 704 1354. We’ll be able to help you understand the interaction of income tax, capital gains tax and available reliefs relevant to your personal circumstances.

Using existing pensions to provide funds for property purchase: A source of funds often overlooked when looking at ways of funding a property purchase is to use existing pension funds. If the funds are added together it can be possible to borrow 50% of the combined fund values and add this cash to the fund. The combined amount is then available for property purchase. Again please call if you wish to relate this planning to your personal circumstances.

You can only hold commercial property in a pension. If you own a shop with a residential flat above we can enable you to move the commercial part into the pension but the residential part cannot move into pension.

Who can benefit?

  • Anyone thinking of purchasing a commercial property and using pension money to do this.
  • High earning professionals who also own a share of their partnership or company premises for example medical and other professionals.
  • Limited company owners where the property is held in the company. This is especially pertinent if the property is the company’s largest asset and exposed to the business risk.
  • Limited company owners interested in reducing income tax and corporation tax.
  • Business owners interested in extracting cash from their business tax efficiently.

How it works

Our role is to advise individuals and companies on the best way to utilise the property pension based on their own financial circumstances and objectives.

We will use either a Self Invested Personal Pension (SIPP) or Small Self Administered Scheme (SSAS) as the vehicle for the planning. There are important differences between these two routes in what they are legally able to do. Depending upon the number of members and other factors the charges often pose a significant influence on the final decision.

As Chartered Financial Planners we not only advise on the planning but implement it as well. All you have to do is call to find out how we can help and then sit back and reap the benefits. Call 0121 704 1354.

Parker Chartered Accountants and Financial Advisors is the trading name for PLW Advisors Ltd (Registered No. 10396831), and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here