Tax efficient property purchase

Our client was the owner of a successful trading company and was looking to acquire his first commercial premises from which the company would trade (the company currently rented an industrial unit). He was keen to structure the transaction in a tax efficient manner and, given the current turbulent economic times, in a way that would protect the equity in the property from the company’s creditors.

We worked with his financial adviser and created a SIPP (Self-Invested Personal Pension) and the company made a pension contribution into it from its profits (the company obtained tax relief on this payment). The SIPP was able to use this cash as a deposit on the premises and financed the balance.

A market rent was paid by the company to the SIPP (the company obtained tax relief on this also). The receipt of this rent into the SIPP is tax free and this was used to make the loan repayments.

Any increase in the value of the property is Capital Gains Tax free as it is within the SIPP and additional pension contributions can be made by the company should further investment opportunities arise.

Finally, as the SIPP is a separate legal entity to the trading company, its assets are sheltered from any claims by the company’s creditors should the company become a victim of the economic climate.

Comment – Pensions are an extremely tax efficient investment and the use of a SIPP gives extra investment opportunities and control over where the fund’s assets are held. Whether or not they are the best place to invest long term depends on individual circumstances and you should consult with your financial adviser and accountant before making any decisions.