Property Ownership for Businesses
4 February 2019
Most business owners will be aware of the benefits of property ownership within a pensions planning context but may not realise they can also use private pensions they have contributed to in the past.
Maybe the business is looking at an initial purchase of a building or perhaps considering bigger premises. If that’s the case, then ‘pooling’ the various pension pots that the firm’s senior people have built up over the years can be an effective funding option.
Sometimes we meet business owners who haven’t leveraged this ‘whole pensions’ equation’ to benefit their business. It’s not unusual to find that they’ve accumulated a couple of hundred thousand pounds in various pensions, but when it comes to purchasing their own premises on their own, that’s not going to be enough.
SIPP and SSAS solutions can enable partners/directors to coordinate the ‘pooling’ of these funds, enabling the business to buy commercial properties in, say, the £500,000- £1m range (or even more). It is also possible for the pension fund to take out a commercial loan to enable the buying of bigger premises.
This approach can be extremely tax efficient and there are also additional benefits.
Where you’ve got junior partners coming into the business (who maybe lack sufficient capital), there’s scope for them to contribute to their own pension pots. This plays out nicely from a succession planning perspective where individuals with an eye on retirement may seek to swap their share of the commercial property with those looking to buy their shares.
Often, senior partners/directors will phase their retirement, reducing the number of days they work, so the transition of ownership of the property takes place over a number of years whilst allowing the junior partner/director to buy into the business at a more affordable rate than they would have been able to do so if pressed to do it all in one go.
Finally, within the SSAS route, the loan back facility may be a useful tool to help fund purchases such as commercial vehicles, machinery or the construction of new buildings as pension regulations allow the business to borrow up to 50% of the value of the pension fund.