What a lot of people don’t realise is there are some alternatives to traditional investments available to your pension funds and one of the most popular includes commercial property.
This is a specialist area and can be very costly but, simply put, you can borrow up to 50% of your pension fund and use this with your pension fund to purchase a commercial property. This can be especially useful for our corporate clients who may run a business and own their premises but need extra cash or where the company is renting from a third party. Here are the maths:
Pension fund: £100,000
Maximum borrowing: £50,000
Allowing you to purchase a commercial property including all costs of no more than £150,000.
The £150,000 is then placed back into the business allowing the business to fund any expansion plans and thus boosting cashflow.
The problem is that not just any old pension is able to take advantage of this complicated area and you would therefore need to consider either a SIPP (Self Invested Personal Pension) or a SSAS (Small Self Administered Scheme). With SSAS’s particularly the layers of complexity increase and usually the associated costs.
Once established, the property is rented out (even back to your own company) which in turn pays rent back into the pension to provide the growth. The business is still able to claim tax relief on the rent but it is received back into the pension without liability to tax. There is also no capital gains tax on subsequent disposal.
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