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Alan Kendrick: Using a pension fund to purchase business premises
Are you starting a business or already in business and looking to raise funds to purchase business premises? If so, then consider using your pension funds to purchase the premises.
Are you starting a business or already in business and looking to raise funds to purchase business premises? If so, then consider using your pension funds to purchase the premises.
It is possible to purchase business premises through a pension scheme and this can be very tax-efficient and have other advantages. Doing this through a pension scheme does provide very significant tax reliefs and allows you to "keep" the rents (in your pension scheme) rather than going into the pockets of the property owner.
The pension fund has been built up from contributions, usually over a number of years, which qualified for tax relief. This means that the Inland Revenue is partly funding the property purchase and, depending on your personal tax rate, the Inland Revenue could be paying up to 40 per cent of the cost.
The business has to pay a commercial rent and qualifies for tax relief on the rent as before. The rent is paid into the pension scheme and the pension scheme is not liable to tax on the rents received.
On eventual sale, the proceeds are free of capital gains tax.
As the property is owned by the pension scheme, it is not available to creditors if you should become bankrupt.
Finding a good tenant should not be a problem, as you will be the tenant.
Existing pension contributions could be suspended or reduced as the rent payments are taking their place.
There are a few things to be aware of:
It may be necessary to make one-off contributions to the pension scheme in order that sufficient funds are available.
If there is a shortfall of funds, the pension can borrow up to 50 per cent of its own value.
If there is still a shortfall then it is possible to use two pension funds to purchase the property jointly – very useful for husband-and-wife businesses.
The premises still need to be surveyed and valued, and legal costs etc have to be paid by the pension and, therefore, must be taken into account in the costs.
The premises are owned by the pension fund and a commercial rent must be paid. It will be subject to rent reviews etc. You would have to sign a lease with the pension fund and it is subject to all the normal terms of such a lease.
On eventual retirement, the premises may have to be sold in order that pension benefits can be drawn, although this may not be strictly necessary. This may cause a problem if it is hoped to pass the business through the family, but there are a number of ways round this
The whole process can be long and cumbersome and requires detailed consideration, specialist advice and expert implementation. Oakwood Financial Services would be pleased to provide a meeting free of charge to assess the viability of such an arrangement for you.
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Wednesday 23 May 2012
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