Why did Geoff get in touch with us?
Geoff was the owner and director of a very successful marketing business.
He owned his existing office in his Self-Invested Personal Pension (SIPP), which is a very common arrangement. Indeed 75% of all commercial offices valued at under £0.5 million are owned by pension schemes of one type or another.
Geoff wanted to buy and refurbish a church as his business needed new premises due to terrific expansion; a grand scheme, especially as Jim had a keen eye for design. However, he wanted to include a co-director, his wife, Sally, in the project and other family members, who had no pension provision.
Once his business moved to their new premises, Geoff wanted to let out his existing premises to produce a further income stream.
How did we help?
We devised the following solution:
- We set up a new Small Self-Administered Scheme (SSAS) with two members; Geoff and Sally
- The SSAS permitted dual ownership and was cheaper and simpler than setting up two individual SIPPS
- We transferred some existing personal pension funds in to the SSAS
- Both Geoff and Sally made the maximum possible additional contributions. These were funded by the business and consequently attracted corporation tax relief
The church was duly purchased but unfortunately the redevelopment costs were larger than expected.
A commercial mortgage was needed.
We identified that their business was cash-rich and that it was cheaper to arrange a loan from the business to the SSAS, rather than approach a bank.
This also meant that his company enjoyed a reasonable rate of interest on the money lent, rather than next to nothing with their existing bank.
Once this transaction was completed, we turned our attention to Geoff’s existing office.
We transferred the ownership to a new SSAS with different membership. A company can have as many pension schemes as it likes, and this scheme included Sally and their son. The old SIPP was closed.
A new tenant was found for the old office and regular pension contributions commenced for Geoff’s wife and son.
However, Geoff had one final problem that we needed to solve.
He is now heading towards the Lifetime Allowance limit, which means he can’t accumulate pension savings more than £1 million without facing punitive tax charges. Geoff’s high earnings mean he also faces a restriction on his pension contributions. We are dealing with both issues by making significant contributions in Sally’s name.
Finally, Geoff wishes to retire early at age 60. We have used our financial planning software to model various scenarios to understand the contributions needed to make this a reality. Once in retirement (or semi-retirement), the planning software devises the most tax-efficient method of drawing income from his various pensions and investments, to maximise his overall return and minimise the tax paid.
How did Geoff, and his business, benefit from our advice?
Working with Geoff and Sally proved to be one of our most interesting and challenging pieces of advice this year.
The results genuinely improved Geoff and Sally’s financial future:
- The new office is stunning and has been occupied by the business
- Their existing office has been sub-let, producing a steady income stream
- Part of the purchase of their new premises was funded by additional pension contributions, which attracted corporation tax-relief
- The loan from the company to the SSAS means it is now receiving a far more attractive return, which was previously being devalued in real terms
- Future contributions will be directed towards Sally’s pension, to ensure Geoff doesn’t incur tax charges
- Their plans to retire early are on track
We can help you too
If you are a business owner and would like to know more about the advantages of owning your premises in a pension, please get in touch.
Call us on 01664 77 88 99 and ask for Alasdair, Jim or Rob.