Mr Smith owns business premises used by his company and would like to purchase them using his pension. The premises are valued at £250,000.
He has a Self Invested Personal Pension with a fund of £500,000.
Mr Smith’s Pension can borrow up to 50% of its net assets less any existing borrowing.
Therefore £500,000 x 50% = £250,000 available borrowing.
Although in this case his Pension holds sufficient funds to purchase the business premises without borrowing, Mr Smith will also benefit from his Pension holding his business premises by way of:
No Capital Gains Tax liability on the eventual sale of the premises by the Pension, but any capital gains tax implications on Mr Smith selling the premises to the Pension would need to be considered
No Inheritance Tax Liability on the sale of the premises
Excluding the premises from any creditors’ action he may face
Contributions to his Pension will continue to benefit from tax relief within allowable limits
Rent paid by the company for the use of the premises and received by the pension will be tax free
The rent paid into the pension will increase the value of his pension fund and his income in retirement if the rent is more than the monthly loan repayments (or if no borrowing is needed).
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