Pensions
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Property Purchase by a Pension Fund
Mr. C and Mr. D are aged 45 and 48 respectively, and have accumulated various pensions with a total value of £100,000. They have been considering purchasing an office in their own name, but are struggling to come up with the funding (although they do have spare cash in the business).
Ovation advises them to utilise existing pensions by transferring into a Self Invested Personal Pension (SIPP). They make an additional contribution from company profits of £50,000 (which attracts no income or corporation tax). The SIPP then borrows a further £50,000 from the bank, and purchases the property for £200,000. The offices are then leased to the company.
The company still pays rent, but this time to the pension fund of Mr. C and Mr. D. The pension fund receives rent of £18,000 p.a., and pays interest on the loan of, say, £3,000 p.a. The difference is invested, and used to repay the loan in, say, 8 years time (depending upon investment growth).
Any growth in the value of the property, when sold, would have been subject to capital gains tax if owned by Mr. C and Mr. D - the pension fund does not pay this tax. Additionally, if the company were to fail, the property is owned by the pension fund and should therefore be protected from creditors.