Investing in property - pensions

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
A client of mine had a meeting with his bank manager the other day who suggested that instead of renting an industrial unit for a new business venture, he should set up a pension fund to purchase the property, which then rents it to the business, saving on corporation tax and creating an investment for when he retires.

I have heard of this before but don't know much about it - can anyone tell me how exactly it works, and if there's any dangers to watch out for. Client's a bit sceptical about it and thinks that the bank manager may just be pushing the idea due to the commission he'd received from the deal!

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Investing in property - pensions

    What a coincidence, I've just seen that the chartered accountant that we use has recommended exactly the same thing to one of our clients. I guess this is the new tax planning opportunity??

    Annette
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Investing in property - pensions

    The basic principle is you set up a SIPP, the SIPP buys the commercial property and then the trading company pays the SIPP rent. The SIPPs rental income is tax free and accumulates for the benefit of the owners. When the property is sold by the SIPP there is no CGT. Rental income is tax deductible for the company as usual.

    I think it is only really an option if you are in a position to be buying commercial property as oppose to renting. A SIPP is not able to take out loans for greater than 50% of the value of it's assets which means you have to have some spare cash lying around to put into the SIPP. Also the money you put in is a pension contribution so the tax consequences of making a very hefty contribution in a single year have to be considered.

    IFAs get very excited about it though!

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Investing in property - pensions

    From a tax planning perspective they can be extremely beneficial ever since the pension simplications in April 06.

    Dean makes a valid point in terms of IFAs and their keeness to sell these. I advised a client a couple of months ago AGAINST a SIPP, purely because it would not have been beneficial (in both the long and short term) for them to have gone down the SIPP route for various reasons.

    I had the IFA on the telephone soon after trying to tell me my job! Needless to say the telephone conversation was very irate.

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