As you may have spotted, I love lists. Especially when they are reasons to seriously think about a financial approach to things you may not have previously considered; and when they make as much sense as this list does!
If you are a business owner or interested in commercial property investment, then you need to read on. There are some real opportunities that you may not be aware of which could add a boost to your business and your property investments.
1. Your SIPP can invest in your own business’s property, or one for another business
One thing you can do with a SIPP is to take advantage of the opportunity it provides for you to buy and invest directly in UK commercial property.
This is obviously ideal if you are self-employed and wish to use your SIPP to assist you in buying your business premises. What you may not know however is that the property doesn’t actually have to be linked to the business you own.
2. The Tax Man – he’ll even help you buy the place!
Get the Tax Man to chip-in for the purchase of the property.
I don’t think I’ll ever get tired of writing that sentence, so I’ll
repeat it… “Get the Tax Man to chip-in for the purchase of the property”.
That’s because your SIPPS or SSAS pension contributions qualify for tax relief. So they automatically boost your own contributions, help purchase the property and make mortgage repayments too.
As you can imagine the system of tax relief is often complex. Put basically the rules hinge upon whether it’s your company, or yourself that’s making the contributions.
To try and simplify it here a Personal Pension Contribution of £10,000 would get £2,500 in tax relief – meaning a pension contribution of £12,500 would be made in real terms. With high rate taxpayers able to then claim an extra 20% with additional rate taxpayers able to claim even more.
If it’s a Company Pension Contribution, then all contributing amounts are treated as a business expense when calculating company profits and subsequent Corporation Tax liabilities.
3. Renting just makes your landlord wealthy
Lining your landlord’s pockets with rent, whilst repairing and up-keeping their property is only ever a fabulous deal for your landlord!
With rent and repairs often seen as dead money, more and more business owners are seeing the advantages of owning their own premises; and are utilising their SIPPS or SSAS to make this a reality.
4. The more you pay in rent – the more your pension grows
If your SIPPS or SSAS owns your company’s premises, your company is still a tenant, but it’s now your pension that will be the landlord. Which means that it’s your SIPPS or SSAS that receives all of your rent.
Not only does the rent increase your pension, but it’s also tax-free when there is a formal lease in place arranged on current commercial terms. Best of all, it’s treated as a business expense in the company’s accounts, reducing your profits and Corporation Tax bill.
5. Pay NO TAX on the sale of the property
Owning your own business premises personally, or through a limited company means that when it comes to a sale, any profits would potentially attract tax. Obviously there would be the normal Capital Gains Tax exemptions if you owned it personally – but there would usually be something to pay.
Owning your property through your pension means that no tax is payable when you come to sell the property.
6. Become the master, or mistress, of your own destiny
As long as you continue to pay yourself the rent on time and any borrowing commitments are met, you are in complete control. We’ve all heard stories about businesses being priced out of their premises by massive rent rises, or simply having the premises sold up from under them.
Owning your own premises through your SIPPS or SSAS pension puts you in the decision making seat and provides the certainty that you’ll always know what the plans are for the building you occupy and pay for.
7. A business asset you can bank on
Your SIPPS or SSAS pension can borrow up to 50% of its value to help fund the purchase of a property. That can be the one you’re in right now, or an additional property in the future.
With SIPPS or SSAS pensions able to borrow from a bank, just like your business would. In fact, pretty much all the banks are now used to lending to SIPPs and SSASs and have specialist departments dealing specifically with these types of loans.
8. Keep your options open
If you don’t have enough in your pension to buy your property outright, there are options available to help bridge that gap.
You could consider:
• Additional pension contributions
• Multiple pensions, multiple owners
• Joint purchases
Not having the capital right now shouldn’t mean you should rule out purchasing your property. To get an idea of how these work, speak to your financial adviser.
9. A cash injection for your business
If your business has already bought its own premises, then arranging to purchase it from your company via your pension can provide your business with a significant cash injection. As once the transaction is completed any cash held in your pension would transfer to your business and the property would now be owned by your pension, with all of the tax advantages that come with that.
Just be aware that this option isn’t for everyone. As any transaction has to be on commercial terms and at market price, determined by an independent valuation.
If any profit has been made on the sale, then that could trigger a tax charge. You will also have fees to pay like stamp duty, plus you won’t be able to access the income from the property until you’re at least 55 years old.
10. Lower taxes to pay when the door finally closes
Owning your business premises personally, outside a pension, means that it will be included in your estate when calculating any Inheritance Tax due on your death.
However, assets held in a pension are outside of your estate for Inheritance Tax purposes. There are other tax advantages too, which depend on when you die, but you need to consult your financial adviser for further advice on this.
Our office door is always open
If you have any questions regarding buying a commercial property with your SIPP or SSAS pension, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through the options available to you.