Pension Property Purchase
The first thing to recognise is that residential property is expressly prohibited as any form of pension property purchase investment. Only commercial property may be held inside a pension.
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If a company or an individual buys a commercial property there is no tax relief on the purchase price and Capital Gains Tax is payable on any profit on disposal.
Conversely if one makes a pension contribution with that same money and then uses that money to buy the property there is tax relief on the pension contribution and any gain in value is tax free!
Pensions may also borrow up to 50% of their value to fund a pension property purchase.
We generally recommend that you use either use one or more SIPPs or a SSAS to purchase a commercial property for 5 main reasons:
Reason One: Security
A SSAS/ SIPP is a trust so assets held within it are free from creditors’ claims.
Reason Two: Capital Gains Tax Benefits
Assets within a SSAS/ SIPP can grow in a tax-free environment.
Reason Three: Inheritance Tax Benefits
A SSAS/ SIPP can be used as a family trust with children and other beneficiaries as members (SSAS) beneficiaries (SIPP) , providing a simple way to effectively plan for IHT.
Reason Four: Corporation Tax Benefits
There are two main advantages;
a) Property can be added to a SSAS/ SIPP as an in-specie contribution and is treated as an allowable expense. This may remove any CT liability in the current year, but can often trigger a CT refund.
N.B. It is important to mention that although some SIPP and SSAS administrators have recently been challenged by HMRC over in-specie contributions, the challenges have been around claiming tax relief at source. We claim tax relief via CT as the contribution is an allowable business expense, so this issue does not arise.
b) Rent paid into the SSAS by the company is an allowable expense.
N.B. Where the lessee is connected to the SSAS, market rate must be applied.
Reason Five: Personal Tax Benefits
There are two main areas of benefit;
a) If the commercial property is moved to the Ltd Company before being contributed to the SSAS/ SIPP in-specie this will create a credited DLA which can be repaid by the company at some stage in the future.
b) As rents are paid to the SSAS and not to the business owner personal tax is reduced.
Funds can be withdrawn from the SSAS (after the age of 55) with the first 25% tax-free.
Although the other tax implications must be considered, (CGT, VAT, SDLT) it is usually the case that the business owner is better off holding their commercial property in a SSAS.
Contact Us now for further information on pension property purchase.
We are pension property purchase experts based in Ashford & Canterbury in Kent.
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