Property Purchase using a Pension Scheme

Q: My husband and I would like to purchase premises for our business costing £275,000. Between us we have old private pensions built up of about £110,000, – can we use these funds towards the purchase?

A:The short answer is yes. Self Invested Pension funds such as SIPPs and SSASs are used in many family businesses as a very tax efficient way to purchase commercial property.
A SSAS or indeed a syndicated SIPP arrangement allow it’s members (in this case yourself and your husband) to effectively pool their pension resources, Both SIPPs and SSASs can borrow money from the bank (subject to approval), allowing an even greater degree of flexibility.
To make an immediate purchase in your case would require some new funds to be put into the pension scheme to make the purchase, but the funding could look like this.

                                                                                   £
Transfer of existing pension policies                           110,000
New contribution (within current guidelines)             90,000*
Bank Borrowing, up to                                              100,000
Funds available for purchase and stamp duty           300,000

Q: That sounds interesting – but what are the tax advantages?

A: The first is the tax relief that you will obtain on the new contribution of £90,000*. If your business is a small limited company this alone should save you corporation tax of £18,000.
On an ongoing basis the business will pay market rent which is likely to be around £22,000 per annum to your’ pension fund, again with the business getting tax relief on the payments. As well as the surplus from the annual rental, further pension contributions can be made, at your discretion. The current rules broadly allow for gross contribution of up to £50,000 per person per annum. These would also qualify for tax relief for the business. Eventually as the pension scheme builds up surplus funds either loan repayments can be accelerated and/or further investments can be made.
A pension scheme pays no income tax on the rent it receives or capital gains tax when it eventually disposes of the property. An arrangement such as this allows you to take control of your pension planning via a tax efficient, transparent understandable vehicle.

Q: Is there anything else we need to think about?

A: Yes! There are a number of important legal, taxation and regulatory hurdles which need to be overcome to make this happen. You will need good advice from a suitably qualified firm to help you.