Buying Property with your Pension Fund

When you’re running a successful business and outgrowing your rented premises you might consider buying a commercial property instead of renting.

If you’ve got money in your pension fund why not explore whether you use it to invest in the property rather than buying it through your company or personally?

Once set up, using a pension fund in this way is quite straightforward. Your pension fund owns the property and leases it back to your company, which pays rent to your pension fund and gives you a ring fenced asset for the future.

You can achieve this with the help of the significant tax advantages available to an HMRC approved pension fund.

What are the Disadvantages?

The main thing to remember is that this is a pension fund. To get and keep HMRC approval you have to follow certain rules and regulations.

It’s important to keep everything at arms length and commercial. Some people find this annoying, but it makes sense in the long run.

Also, you can’t take any cash or income from your pension fund until you are aged 55 (increasing to 57 in 2028).

What are the Advantages?

  • The rental income paid to the pension fund is exempt from income tax.
  • The rent the company pays (as the tenant) is classed as a business expense. So it reduces your corporation tax liability.
  • When the property is sold any gain is exempt from capital gains tax.
  • Pension contributions receive tax relief.
  • The property, as a pension fund asset,  is outside of your estate for inheritance tax purposes on death.
  • Your future retirement income could be funded from ongoing rent receipts.

What Else?

  • If you don’t have enough in your pension fund, it is possible to borrow within certain limits.
  • If you already own a commercial property personally or through the business, you could sell it to your pension fund, releasing capital for yourself or into the business to help cash flow.
  • The property is protected from creditors, in the unfortunate event that your business fails.

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Risk Warnings

This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change and is correct as of the date of the post.

If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.

The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.

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