Pensions – Buying a Commercial Property
Business Property Ownership
The problem: Buying or owning commercial property
The benefit: Property ring-fenced from Company creditors, Tax effective treatment of rent and property value
Suitable for: All business owners
John, Simon and Bill are all shareholders in their own manufacturing business.
In 2005 the directors concluded that they wanted to buy the business premises they trade from for £400,000, however, the company was not in a strong enough financial position to do this. They therefore bought the property personally subject to a mortgage of £200,000.
In 2008, we recommended increasing the contributions into their individual pensions, funded by the company. This then meant that in 2011 we were able to establish a SSAS pension (Small Self-Administered Scheme) and we transferred in all the funds from the personal pensions. The combined value of their pensions amounted to £750,000 which meant there was sufficient money to purchase the property outright for its then market value of £600,000.
This meant that the three of them, as directors, each received £200,000. This enabled them to repay the outstanding mortgage of £100,000, pay the relevant capital gains tax on the increase in property value and left each director a sizeable lump sum to use for their own personal requirements.
The business now pays rent to the SSAS and these monies are adding to the value of the director’s pensions month by month, in a tax privileged environment. Now that the property is owned by the pension, any future gain in its value will be tax-free.