Property pension opportunities

Radical changes in the 2014 budget in relation to the benefits which can be taken from pension policies are likely to bring into greater focus the advantages of holding business premises in the pension fund of business owners.

Instead of the premises being owned by the business or rented from the business owner, it is in some circumstances possible for commercial property to be held in a pension scheme. The business rents the property from the pension and obtains tax relief on the rent cost. The pension scheme receives the rent tax-free. Similarly, any increase in the value of the property accrues tax free within the pension fund.

If the business owner has existing pension funds and owns the business premises, a useful way of freeing up cash funds to the business is to use the pension fund to buy the premises from the business owner. The business owner in effect exchanges the premises for cash funds. A new commercial property could perhaps be acquired by consolidating and using existing pension funds. The pension scheme may borrow funds to make the purchase up to certain limits.

Alternatively, a new commercial property could be funded from a pension scheme as a mechanism to obtain tax relief on the cost. Tax relief on the structural cost of new buildings will be limited. A tax efficient alternative may be for a company to pay pension contributions to a pension fund for the business owner, which can then pay for the property. In the appropriate circumstances, tax relief may be available to the company on the cost of the pension contribution.

Business owners should also be aware of recent capital allowances changes in relation to fixtures in commercial property. For the last two years it has been necessary to agree the fixtures element of any property transaction but the most recent development is that from April 2014, before a purchaser can claim any capital allowances on fixtures, he must check the seller had allocated the original cost to their business capital allowances pool.

There are tax and other implications of transferring and holding property within a pension scheme, advice should be taken on the tax issues and it will also be necessary to involve a specialist pension and investment advisor.

If you wish to discuss the options for your business premises or require advice on this or any other tax matter, please contact Mark Thompson at Rennie Welch on 01573 224391 or email mark.thompson@renniewelch.co.uk