Using a pension plan to buy your own business premises and save on tax is an idea that strikes me as making great sense all round.
You’ll need to speak to a good tax accountant and take their advice. Here is a way to use a Self Invested Personal Pension Plan to assist with the purchase.
How does it work?
The pension plan has a fund of money that is converted to cash and used by the pension fund trustees to purchase the
commercial premises. Because the pension plan can also raise a mortgage of up to 50% of the cash fund value, you can buy property costing 150% of the fund value.
- The business pays rent to the pension fund and receives tax relief on the rent paid.
- The pension fund pays no tax on the rental income.
- If the property increases in value the pension fund pays no Capital Gains Tax.
- On retirement the property can be sold and the amount raised could be converted into a retirement annuity, this will generate a secure income for life (though this would be taxed as earned income).
- Alternatively, the property can remain in the pension fund and still receive tax-free rent from any new tenant. The client, as owner of the pension fund, can then derive an ongoing income through what is known as a pension drawdown plan.
- The property is protected if the business goes into liquidation.
- Heirs can inherit if the owner dies early.
Altogether, this could be a very tax-efficient way to purchase business premises.
Why not talk to your Independent Financial Adviser for more innovative ideas on pensions, property and tax?