The Business Exchange Bath & Somerset Issue 17: Autumn 2020 | Page 11

Steve Woodham, Senior Pensions Manager, Old Mill Buying property with pensions can help small business owners ease cash flow Many businesses are struggling with cash flow at the moment; Steve Woodham, Senior Pensions Manager at financial experts Old Mill says pensions could offer a solution. “Because it’s a pension, and therefore tax-efficient, the rent paid into the fund is not subject to tax and you won’t pay tax on any increase in the value of the property either.” If your firm already owns a commercial property, selling it to your pension scheme could provide that cash injection you’re looking for. You can purchase a commercial property either with a SIPP (Self-Invested Personal Pension) or a SSAS (Small Self- Administered Scheme). The pension can either buy the property outright, or if funds are insufficient, can take out a mortgage to facilitate the purchase and let the property back to the business. The rent will help pay off the mortgage, or if the pension scheme bought the property outright will just be further cash and growth to the pension fund. Because it’s a pension, and therefore tax-efficient, the rent paid into the fund is not subject to tax and you won’t pay tax on any increase in the value of the property either. But, if you are letting the property back to your own business, the rent is still a tax-deductible expense. Even if the price of the property you want to buy is higher than the value of the pension, it may still be possible to purchase it with the pension, either by getting a mortgage, combining pension schemes together, contributing to the pension so it has the funds, or a combination of all three. A business buying its own premises obviously offers a way of relieving cash flow issues, but SIPPs and SSAS can buy any commercial property, it doesn’t have to belong to your own business; whichever business uses the property pays rent into the pension. Buying property with a pension has its advantages but it’s a complex area and there are risks to consider. For example, if the only asset in your pension is a property, and you’re near retirement, it will be difficult to create liquidity to pay out an income or the tax-free lump sum, so it’s generally advisable to have a diversified portfolio. If you are considering buying a commercial property with your pension, you should seek financial advice. SSAS Example: DIRECTOR CONTRIBUTIONS AND MORTGAGE COMBINE TO BUY A FIRM’S PROPERTY, VALUED AT £280,000 A company has three directors and the total value of the firm’s SSAS is £140,000 Each director contributes a further £20,000 gross, bringing the total in the pension to £200,000. The pension scheme then takes out a mortgage for £100,000 enabling it to buy the firm’s commercial property for £280,000 and giving the business a valuable cash injection. The business then rents the property from the pension scheme, and this money is used to pay off the mortgage. When the property is eventually sold, the proceeds will go straight back into the SSAS, minus any outstanding mortgage. @OldMillAFP Financial experts, fuelling ambition Practical guidance and financial advice for business owners across the South West. [email protected] | om.uk THE BUSINESS EXCHANGE 2020 11