Along with the general upturn in the economy, we are seeing an increase in the number of clients upgrading their premises – either by way of extending, refurbishing, or in the main purchasing new premises altogether.
Many of these clients are utilising their pension funds to purchase new property as an asset of their pension fund, or alternatively borrowing money from their pension fund to help fund the purchase/improvement. Like me, they would much rather pay rental or loan interest to their own pension fund, rather than to a landlord or bank.
A normal pension fund will not have the facility to make these investments, so you need to establish a Small Self-Administered Pension Scheme (SSAS). Such a scheme will have wider investment powers to enable the fund to lend money to the sponsoring employer and purchase commercial property as an asset. The value of existing pensions is transferred to the SSAS and the funds can then be used to self-invest.
Pension contributions could also be made by the company, but it is important to remember that these attract a minimum of 20% Corporation Tax relief. If the company was considering purchasing the property itself, there would be little or no tax relief available. It is also possible to make a purchase in conjunction with other parties i.e. the SSAS and the company and other third parties.
If a property is purchased and there is VAT payable on the purchase price, the pension fund can usually register for VAT and therefore reclaim the VAT due on the purchase price and subsequent fit-out costs. This would mean that VAT would need to be added to the rental and reclaimed by the tenant.
In addition, a SSAS can borrow money to help purchase the property with the maximum amount being 50% of the value of the pension fund. Therefore, if the pension fund was worth £300,000 a further £150,000 could be borrowed to facilitate a purchase price of £450,000.
If a loan is being made to the company for it to buy the property, then the SSAS needs a first charge over an asset of equal value to secure the loan. The maximum loan term is five years, with capital and interest being paid over the term. The maximum loan that can be made to the company is once again 50% of the fund value.
Carpenter Rees has many years’ experience in establishing and running SSASs and they can be the perfect pension arrangement for a family business.