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Advice
Buying your
business
premises
In the second part of the article, started last month, Independent
Financial Advisor Gavin Porritt examine the final option when
purchasing business premises - using your pension scheme.
L
egislatively speaking, all registered pen- expense for corporation tax purposes. cannot be easily sold. Having said this, the
sion schemes can invest in commercial • As the property is owned by the scheme, availability of phased retirement and income
property. it is separate from the company/individual, so drawdown has made it easier to manage this
In practice, scheme trustees and providers there will be no enforced sale of the property risk. Even if a property cannot be sold quickly,
limit the investment options.. Greater invest- by creditors if the company/individual goes rental income from the property can be used
ment flexibility is only found under more spe- into liquidation or becomes bankrupt. to pay pensions.
cialist vehicles like self invested personal • There is no capital gains tax (CGT) payable
Joint purchase headache
pensions (SIPP) or small self-administered if the property is subsequently sold.
schemes (SSAS). There are also restrictions on • Improvement in the company cash flow – • This can also be a potential problem with
occupational pension scheme (OPS) invest- the funds that would be required for the com- joint purchase. In addition to the above, possi-
ment in property that is leased to the sponsor- pany to buy the property can be used for other ble solutions include the remaining syndicate
ing employer or associated companies (or business purposes. Similarly, if the company members using liquid assets in their pension
parties connected with such a company.) already owns the property and sells it to the schemes (or borrowing via their pension
The rules
scheme, it will get a cash injection. schemes) to buy out the leaving member’s
• On the death of a member before the age share of the property. As a last resort, it may
An OPS cannot invest more than 5% of its of 75 there will normally be no inheritance tax be necessary to sell the property.
assets in employer-related investments, or (IHT) liability as the property is an asset of the • The company has to pay rent at the mar-
make any employer-related loan, unless the scheme; there are exceptions to this though. ket rate.
scheme has fewer than 12 members, all mem- • You can now hold property in your pen- • Potential lack of diversification of the in-
bers are trustees of the scheme and the sion scheme indefinitely, provided you have vestments held within the scheme.
scheme rules require all members to agree in enough liquidity to pay any possible income • If the company needs to borrow, the prop-
writing before any employer-related investment requirements. erty cannot be used as security as it is owned
is made. In practice, this effectively means that • The pension scheme is responsible for by the pension scheme. Borrowing could be
the only OPS able to meet the above rules and maintenance of the property; joint property more restricted, the maximum the scheme can
make significant employer-related investments purchase is possible – for example, two or borrow is 50% of the scheme assets.
are SSAS. These restrictions don’t apply to more SIPPs could jointly own property. The • Investment returns could suffer if the com-
SIPP, as the Revenue does not regard them as proportion owned by each SIPP would be de- pany goes into liquidation and a new tenant
employer-sponsored arrangements. The ad- termined by the contribution towards the prop- cannot be found.
vantages of this route are: erty purchase. Each SIPP would then be
• There is a cost saving - payments to the entitled to income (that is, rent) in proportion to
scheme attract tax relief. its share of the property. If you have any questions or comments,
• Rent received by the scheme is free from On the down side: please feel free to e-mail them through
income tax. • Lack of liquidity, it could be difficult to pay to me at
bm@forumwealth.com.
• Rent paid by the company is an allowable benefits on death or retirement if the property
46 • issue 164 Business Matters
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