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Case study: Using a pension to expand a business

10 September 2020

There are many reasons that a pension scheme may look to purchase a commercial property and here David Bonneywell, director at Talbot and Muir looks at how a business owner uses good financial advice and planning to help expand his family business.

This article was first published in the September 2020 issue of Professional Paraplanner.

Neil owns a car dealership, and has seen a substantial amount of growth and demand for his vehicles. He is therefore looking to build on his current success and to expand and purchase another business unit to operate from.

Neil already owns 50% of the current site in his SIPP along with his company who owns the other 50% share.

Neil arranges a meeting with his financial adviser to discuss his options in terms of possibly purchasing another site with his SIPP.

In addition to reviewing his own SIPP and his wife’s personal pension, he is also looking at establishing a suitable pension arrangement for his son and daughter who work for his company, and to begin making contributions on their behalf.

At the meeting, Neil’s adviser discusses the possibility of establishing a company SSAS, which Neil can transfer his SIPP assets into as well as his wife’s personal pension currently valued at £300k.  Neil’s adviser also confirms that Neil’s son and daughter can join the SSAS as they are both over 18, and Neil’s company could make contributions of £40k each on their behalf, subject to receiving confirmation from his accountant any such payments would be deemed wholly and justifiably for the purpose trade.

Neil’s adviser explains that they could look to establish a SSAS and that the proposed figures would amount to £880,000 (£630,000 in cash).  This would be made up of:

  • £500k transfer from Neil’s SIPP which includes 50% share of the current company property
  • £300k transfer from Neil’s wife’s personal pension transferred in cash
  • £40k contribution for Neil’s son
  • £40k contribution for Neil’s daughter

Neil has identified a suitable property which is valued at £600k. Neil and his family agree a SSAS will be the most suitable vehicle for their circumstances He contacts his financial adviser and they start the process of setting up the SSAS and then transferring the cash and 50% share of his original commercial property into the scheme.  The Family also decide that the remaining 50% of his current commercial property should be purchased by the SSAS which will release £250K into the business to provide further liquidity to assist with the business expansion.

Having formally provided the family with his recommendations to meet their goals the adviser in conjunction with the SSAS provider arrange for the following:

  • A new SSAS to be established, this process including obtaining HMRC approval takes approximately 6-8 weeks
  • Once the SSAS is established Neil’s SIPP is transferred across. The transfer is made up of £250k in cash and 50% of the property held in the SIPP
  • At the same time the SIPP’s property holding is transferred in specie, the solicitors handling this also purchase the remaining 50% owned by the business
  • On transfer of the property, cash is transferred from SSAS back to the business
  • Neil’s wife’s personal pension is transferred to the SSAS in cash
  • The company makes £40k contributions for both children

The SSAS now owns 100% of the existing property worth £500k. Following the transfer of Neil’s wife’s personal pension and the payment of the 2 contributions for the children, the scheme has a cash balance of £380k.

In order to purchase the new property the SSAS trustees will need to borrow a further £220k plus SDLT, charges and disbursements. The maximum borrowing the SSAS can undertake is a value no greater than 50% of net scheme assets. This is currently £440k so there is plenty of scope. Neil has a very good relationship with his bank and a suitable mortgage is arranged through them.

Once the mortgage is agreed, the Trustees through their financial adviser and the SSAS Professional Trustee, arrange for the purchase of the new property which takes 6 weeks.

Neil and his family are delighted with the outcome. They are all now part of their own pension arrangement of which they feel they are in control of. Both business premises are now held in a tax efficient arrangement which will ultimately benefit them all. They have achieved this with minimal impact financially on the business and have also increased liquidity within the company to assist with its continued growth.

This is one of many ways in which a SSAS can assist with the ongoing growth of a business and at the same provide a tax efficient retirement vehicle for its members.

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