Many clients and business directors, managers and owners are interested in purchasing their existing or new business premises using their individual (or grouped) pension funds. We have detailed two options below. Talk to Chapters Financial Limited about your requirements.
Small Self Administered Pension Scheme (SSAS)
A money purchase occupational pension arrangement designed to allow greater flexibility in the way the scheme assets are invested. In our experience, this flexibility is usually used to purchase the commercial premises used by the business. It is a highly tax efficient way of benefiting from any potential capital growth of the property and commercial rent paid into the pension to benefit the member(s). The scheme can also borrow up to 50% of the pension fund value to achieve the commercial property purchase. The rules for these schemes can be complex and full ongoing advice will be needed to achieve the full potential of the scheme.
You will also need to take legal and surveyors advice to complete the purchase. No residential property is allowed for this type of purchase.
Self Invested Personal Pension Schemes (SIPPs)
Using personal pension legislation, these schemes are becoming more popular due to their overall flexibility of investment. An example of one restriction that has disappeared is the issue of connected parties, although transactions should be at arm's length.
Presently, as with a SSAS, SIPPs can be used to purchase commercial property. A pension fund or group of pension funds can be brought together in a SIPP to provide capital for a commercial property purchase. In addition to this, the fund can borrow up to 50% of its value to add to the fund to secure a higher purchase price.
As an example, we have put together the potential workings of the process above in the notes below:
Director 1
Total current pension fund values : £175,000
50% borrowing maximum: : £87,500
Total : £262,500
Director 2
Total current pension fund values : £100,000
50% borrowing maximum: : £50,000
Total : £150,000
Combining the example pension value totals from the above calculations, you can see that a total commercial property purchase price (with 2 directors combining their values to achieve the purchase) using pensions alone could amount to approximately £412,500.
However, it is not uncommon to introduce additional parties to the purchase scheme and this can be both of you as individuals (outside the pension) or as a company.
Because this is a complex area, full advice will be needed to ensure that the advantages and risks of these types of scheme are considered to ensure that you as employer/employee are gaining the full potential from your arrangements.
As we note in our comments for individuals on pension and retirement planning on this website, in 2014, it became possible to avoid annuity purchase if you wish. Again, if you are considering the final benefits that your SIPP or SSAS can provide to you, we would recommend that you speak to your Independent Financial Adviser to check how this could affect your future income strategy.
The level and basis of reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
Chapters Financial Limited is well placed to help you with these issues and we look forward to hearing from you.
Chapters Financial Limited will not offer advice on appropriate mortgage funding and, on request, will refer you to a suitable specialist.
Please note that this is for guidance only and we recommend that you seek further advice from an Independent Financial Adviser before proceeding further. The Financial Conduct Authority does not regulate taxation advice.