Company Directors can use a Small Self-Administered Pension Scheme (SSAS) to buy a commercial property. Just about any commercial property is allowable but residential property is not allowed and, where there is only one member, a Self-Invested Personal Pension (SIPP) could be used in a similar way.
Pensions in general allow Company Directors to reduce corporation tax and build benefits for retirement. Some of the advantages of using a SSAS/SIPP for property purchase are:
- Tax relief on contributions to the pension scheme to build up funds that can subsequently be used to purchase property.
- The SSAS/SIPP can borrow towards the purchase and development of the property.
- Any gain on the property value is free from Capital Gains Tax.
- Open market rent is paid to the SSAS/SIPP free from income tax.
- Rental income payable by the tenants can be treated by them as a business expense for tax purposes.
- Property is outside the member’s estate for Inheritance Tax.
- Property is owned outside of the business so is protected from creditors in the event of insolvency.
There are some excellent reasons why a business owner may want to sell his commercial premises to the company’s SSAS:
- To raise funds for re-investment/expansion in the business.
- To raise funds needed to sustain the business during sustained periods of low trading.
- To place the company’s premises in a “safe-haven” protected from creditors.
- To enable the company to use its pension scheme to purchase business premises.
Using a SSAS to purchase property can be achieved quite flexibly:
- The business owner can sell property he already owns to his company SSAS.
- Where appropriate, only part of a property can be purchased by the SSAS.
- Co-Directors with a common objective can pool their pension funds into a SSAS to buy property.
- The SSAS/SIPP can borrow up to 50% of its fund value when purchasing property.
- When borrowing, there are no individual or corporate liability or credit checks because the mortgage will be in the name of the pension scheme provider.
Property is seen as a relatively illiquid asset that can take time to sell and can, of course, go down in value as well as up so it should be viewed as one part of an investment strategy. The value of any property is a matter of the valuer’s opinion and it would usually not be advisable to invest totally in property, nor might it be suitable if retirement benefits are due to be paid out soon.
Borrowing to invest increases the risk because loan repayments, property maintenance and business rates will still be an expense, even if there is no tenant to pay rent, and that may reduce the other funds in the pension scheme.
Kerseys Commercial Property Department, working with Kerseys Wealth Management Ltd, can help business owners understand the opportunities to use pension funds with commercial property.