You are here: Home - News -

My client has a small business employing 40 staff. He is looking for new premises and wishes to buy through the pension fund. Is this a viable option?

by:
  • 29/01/2002
  • 0
It is possible to purchase property in a pension fund. The trust deed of the fund will empower the t...

It is possible to purchase property in a pension fund. The trust deed of the fund will empower the trustees to invest the scheme’s assets to the benefit of the scheme, including the purchase of commercial property and the power to borrow to that end.

However, the trustees of a company scheme with 40 potential beneficiaries may take a more cautious view of such an investment than, say, three controlling directors putting a property into a fund for just their benefit.

Whatever sort of scheme it is, the loan would be made to the trustees of the fund, secured by a first charge on the property ‘ which must therefore be freehold or long leasehold. The trustees will grant the company occupying the property a standard, full repairing and insuring lease at an open market rent. That rent will have to be sufficient to service the loan repayments and cover any incidental expenses for managing the investment. The principal benefits of this arrangement are that the rent paid by the ‘tenant’ company is allowable for tax, and both the rent receivable and any capital gain on the eventual sale of the property will be sheltered from tax in the fund.

There are some downsides to consider ‘ for example, the set up costs will be greater than a straight purchase in the company’s name, such as professional fees, Stamp Duty on the lease and so on.

If the company’s bank has a charge on the existing premises to secure an overdraft, they may not be happy to see the asset effectively moved into the fund’s name and out of their reach. This would be seen as an investment loan, reliant upon the ability of the tenant to pay the rent, rather than a loan to a trading company.

All in all, your client should investigate the advantages of buying in the pension fund early ‘ it is one area where it is easy to be wise after the event but one cannot normally transfer an existing property asset into a pension fund.

Chris Halliday


Tags

There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
Read previous post:
Survey shows South East house prices suffering

Volatile conditions in the South East were the focus of The Royal Institution of Chartered Surveyors...

Close