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Business Development - Buy your shop with your pension

Whether you own your shop premises or rent, using your pension to ‘buy’ the property could add up to great business sense

Many independent health food retailers are already fortunate enough to own their properties from which they trade. Many more would like to do so, but few are aware that if they ‘sold’ their business premises to their pension scheme there could be significant financial advantages.

If you already own your premises then using your pension to purchase it can actually boost the value of the pension and in addition free up significant assets for you (to reinvest in the business if you so choose). If you use your pension to buy the property from someone else to whom you pay rent then, as your pension fund owns your property, you make the ideal tenant. In future your rent payments will grow your own pension fund rather than lining someone else’s pocket.

This article considers how your business premises may form part of your pension plan.

Advantages of buying with a SIPP

Pensions come in many different types but this article looks at ‘Self Invested Personal Pensions’ (SIPPs) which have existed for over twenty years and through which thousands of people have invested directly in their own commercial property. Quite simply SIPPs are an HMRC-approved, tax-efficient pension arrangement that provides a way of both owning commercial property and growing your pension pot to help fund your retirement. SIPPs are easy to set up, but you should get advice from your financial adviser or accountant.

The advantages of owning your business premises within your SIPP are numerous and include the fact that any future increases in the value of the property are free from Capital Gains Tax (CGT) whilst owned by the SIPP. As your pension scheme now owns the property the rent that you pay is effectively going into your own pension savings. Therefore it is a very tax-efficient way of keeping up your pension funding as these rent payments can be paid into your SIPP in addition to any ongoing pension contributions that you may wish to make (within your own personal Annual Allowance). And, both your personal contributions and rental income accumulate tax free.

A further advantage is that if you own the property at the moment in a personal/company capacity, and sell it to your pension fund, then you will receive the proceeds from the property sale (subject to CGT). As a result you are likely to release significant funds that could then be re-invested back into the business for investment or expansion for example.

Potential pitfalls

Before we look at how it all works it’s important to flag the possible disadvantages that you need to consider. One being that if you need to access the proceeds of your pension fund, for example to take early retirement, or if you fall ill, the property will have to be sold to free up funds, and this can take time. The same applies in the unfortunate event of your death where your beneficiaries will need to sell the property in order to take any money out. Another consideration is that the property’s value may fall.

You should also be aware that once the property is held within a SIPP, it cannot then be used by the company as security for future funding.

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