Purchase of a business aided by pensions

Mr H, Mr I and Mrs J are the three directors of an engineering company, making parts for aeroplanes.  They have been given the chance to purchase the shareholding of a competitor company, and have approached their accountant and a corporate finance company to structure the deal.

The corporate finance company are happy with the overall prospects of the purchase, and are willing to finance the deal by investing £1m.  However, they require commitment from the company of an additional £300k.  Each individual can raise most of their required amount and invest this amount into the business, however they are struggling to raise the final £50k between them.  The company owns the property from which it runs, valued at £300k, with an existing mortgage of £210k, and the bank will not lend any more on this asset.

Each of the three managers has existing pension funds in the region of £80k each.  These could be transferred into a self invested personal pension (SIPP), which would now have a value of £240k.  The bank lends the SIPP a further £60k, and the SIPP buys the property from the company. This injects a further £90k of cash into the business, and removes the debt by the company to the bank. 

The company then uses the £90k left over to enable the purchase.  The company now has to pay rent, however it no longer has to pay interest to the bank, and the rent is being paid into their own pension fund.

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