property + pensions

[Ade B]

Slightly random thought here but does anyone have experience of a company purchasing working premises and then 'leasing' it back via a pension scheme for directors..

Something I've heard about but have no knowledge of.

TIA

Ade

 

[jeremytaylor]

We've looked into doing this, but the IFA we approached to set it up tried to steer us into other plans of his (which appeared to give him far more commission ) and so we got cold feet.

My limited understanding is there are limits as to the size of mortgage on the property, and the rent has to be of a certain proportion. Hopefully somebody with a better answer will be along soon ...

 

[Chris Akabusi]

I work for a IFA/Pension consultants who specialise in this. Its not my forte but i can give you contact details should you wish.

 

[gatty]

For this to work the pension scheme has to buy the propety not directors. The pension scheme then charges rent to the company which in turn goes back into the pension fund increasing its value. This can be extremely tax effecient as company get tax relief on rent and Pension Fund normally in Directors names, so their Pensions increase.

Problems nowadays are that if existing Pension fund nut suffeciently big enough to buy property outright then it may have to borrow the money from 3rd party (normally Bank). There are limitations on amounts a 'pension Fund' can borrow and also current market dictates that Banks don't like lending to people let alone a 'Pension Fund' .

Let me know if i can be of ant further Help?

 

[Benzowner]

Yes, I looked into this some years ago and considered it not worth it. Accountants go on about tax effeciency, IMO absolute tosh. How can spending £1 to save 20p be tax effecient. Take the tax hit, share the profit out amongst the shareholders and do what you want with the money. If you are directors of said company, there are tax loopholes that can be used for your benefit. i.e. earnings of £5600 pa, minimal tax and NI so divis are paid tax free to the shareholders after CT is paid.

 

[janner]

Pension contributions are a very tax efficient way for directors to spend money (especially if your income puts you into the 40% bracket) and it totally makes sense to buy the business premises through a pension and lease it back to the company.
Run it by your accountant rather than an IFA in the first instance.

 

[Ade B]

Cheers for the replies, more than I expected.

My wife and I are the directors and we're just looking at possible options at the moment as we need to sort pensions in the next 12 months or so..

Will chat to our accountant.

Ade

 

[davidjpowell]

If it is your own company premises just be a little cautious. The rules I think mean that you have to appoint an administrator and do everything at Market Value. It can be a little restrictive if your business ever wants to move premises for instance, the administrator would insist that you not lose value (i.e. quality of covenant) where in reality you may make a business decision that a reduced gain is in business terms worthwhile due to increases elsewhere.

 

[Benzowner]

Pension contributions are a very tax efficient way for directors to spend money (especially if your income puts you into the 40% bracket) and it totally makes sense to buy the business premises through a pension and lease it back to the company.
Run it by your accountant rather than an IFA in the first instance.

Excuse my ignorance on this, but how does spending £ and saving you 40p mean it is tax efficient. When the pension is paid, you will be taxed on it, so you, at best, will only defer the payment a few years.

 

[janner]

You can take 25% of your pension tax free (in cash).
The rest is like income so the first bit is also tax free, then 20odd % etc.

I'm no expert, just some bloke on 'tinternet.
His accountant is in the best position to advise. We're just giving some ideas.

 

[PXW]

Also, critically, the investment can roll up tax free in the meantime - whihc makes a very big difference to the compound returns.

 

[Benzowner]

You can take 25% of your pension tax free (in cash).
The rest is like income so the first bit is also tax free, then 20odd % etc.

I'm no expert, just some bloke on 'tinternet.
His accountant is in the best position to advise. We're just giving some ideas.

The first bit is not tax free, that is taken up by your state pension so you pay tax on the lot. Agreed the first 25% can be taken tax free, but to me it still does not sound a good investment I have spoken to my accountant at length on this, and he reluctantly agrees. As regards the pension buying property to pay your pension, when it comes to retirement, the property is normally sold to buy an anuity on which you draw your pension. You can carry on renting the property after you retire, but it must be sold when you reach your 70th birthday

 

[janner]

Paying 40% tax is better than a 25% tax free lump and 22% on the first £30K/year?