RADICAL changes in the budget in relation to the benefits which can be taken from pension policies bring into greater focus the advantages of holding business premises in the pension fund of the business owners.
Instead of 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. 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. 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 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 contributions.
There are tax and other implications of transferring and holding property within a pension scheme and advice should be sought and it will be necessary to involve a specialist advisor.
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