Placing a commercial property in a pension.
Discussion
Just bouncing a few ideas around. If I purchased the freehold on a commercial property, say a small industrial unit, can I 'hold' that inside a pension? I remember a firm I worked for a few years ago did this, the company pension scheme owned the freehold and the company paid rent to the pension fund. Probably not so simple, but you get the idea.
If it's feasible what are the tax benefits? What are the pitfalls?
If it's feasible what are the tax benefits? What are the pitfalls?
Edited by megaphone on Wednesday 4th December 14:11
It is pretty much that simple. the Pension fund must have enough in it to buy the property, or more usually raise a mortgage of 50% of the value of the fund to increase the buying power and make the investment efficient.
For e.g. £100k pension fund can buy a £150k property. Company occupies property and pays rent to Pension fund.
Advantages? Many. Tax efficiency, removes the asset from the balance sheet creating wealth for the business owner (if the business fails the asset is secure), rent is also turned in to personal wealth not lost to a third party landlord. Useful when forming an exit strategy if the business is to be sold on, having a costly asset on the balance sheet isn't always ideal.
Disadvantages? There are fees and the lending rules can be limiting, most commercial purchases would be more highly geared i.e. up to 75% LTV. You have to have enough in the fund to start with, but there are various ways this can be acheived at short notice if required.
Happy to run through some figures if you would like to PM me. (my office is in my Pension scheme, my firm has advised on many similar purchases, of varying degrees of complexity).
ETA: Tax efficiency, to be more specific each £ that the fund uses has been enhanced through tax relief which effectively discounts the cost of buying the unit. In basic terms a £100k unit will only require an £80,000 pension contribution, the £20k gets made up in tax relief. You could write a cheque for £100k to buy it, or make a pension contribution of £80k and buy it. Once bought there are also the usual CGT and income tax advantages (i.e. the Pension isn't liable to these so the rent and equity at sale rolls up gross).
The main drawback is like any other pension, access to benefits is restricted to a degree, and any property investment is illiquid but that isn't pension specific.
For e.g. £100k pension fund can buy a £150k property. Company occupies property and pays rent to Pension fund.
Advantages? Many. Tax efficiency, removes the asset from the balance sheet creating wealth for the business owner (if the business fails the asset is secure), rent is also turned in to personal wealth not lost to a third party landlord. Useful when forming an exit strategy if the business is to be sold on, having a costly asset on the balance sheet isn't always ideal.
Disadvantages? There are fees and the lending rules can be limiting, most commercial purchases would be more highly geared i.e. up to 75% LTV. You have to have enough in the fund to start with, but there are various ways this can be acheived at short notice if required.
Happy to run through some figures if you would like to PM me. (my office is in my Pension scheme, my firm has advised on many similar purchases, of varying degrees of complexity).
ETA: Tax efficiency, to be more specific each £ that the fund uses has been enhanced through tax relief which effectively discounts the cost of buying the unit. In basic terms a £100k unit will only require an £80,000 pension contribution, the £20k gets made up in tax relief. You could write a cheque for £100k to buy it, or make a pension contribution of £80k and buy it. Once bought there are also the usual CGT and income tax advantages (i.e. the Pension isn't liable to these so the rent and equity at sale rolls up gross).
The main drawback is like any other pension, access to benefits is restricted to a degree, and any property investment is illiquid but that isn't pension specific.
Edited by pacoryan on Wednesday 4th December 15:14
No problem, obviously not knowing your situation this may be irrelevant, but it can be worth working out how much you need in the pot, and keeping an eye on the contribution limits/year ends to make sure that if you need to top up, you have the time to do it.
You can also use more than one person's scheme of course, my business partner and our wives all own slices of the building in our schemes.
Happy to answer any random queries along the way if it helps!
You can also use more than one person's scheme of course, my business partner and our wives all own slices of the building in our schemes.
Happy to answer any random queries along the way if it helps!
Mega,
You mention 'we'. If you have a partner who doesn't have pension savings of his/her own, take advice on using this.
http://www.axawealth.co.uk/adviser/retirement/Fami...
It is a SIPP but also has some characteristics of a small self-administered scheme (SSAS), commonly used by businesses. As with a SSAS, all members of this SIPP invest in the same holdings but if your partner doesn't have pension savings, you may attribute growth to him/her, resulting in tax benefits later on - particularly important in light of the personal allowance creeping up to something worthwhile in its own right.
Take advice you trust.
You mention 'we'. If you have a partner who doesn't have pension savings of his/her own, take advice on using this.
http://www.axawealth.co.uk/adviser/retirement/Fami...
It is a SIPP but also has some characteristics of a small self-administered scheme (SSAS), commonly used by businesses. As with a SSAS, all members of this SIPP invest in the same holdings but if your partner doesn't have pension savings, you may attribute growth to him/her, resulting in tax benefits later on - particularly important in light of the personal allowance creeping up to something worthwhile in its own right.
Take advice you trust.
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