I have 140k cash in a business that I would like to release and use. How would I do this, is a SIPP an option?
02 February 2021
Question by Angus
Hi, I want to buy commercial premises to house my company. I have found suitable premises @295k. I have 140k cash within the business that I would like to release and use. How would I do this, is a SIPP an option? I have not paid into my pension for the last 5 years so I believe I have 3 years backlog allowance that I could use? What are the benefits if I can buy this property in a SIPP. Thanks
Answered by Carla Brown
A SIPP or SSAS would be a viable option to purchase a commercial property with a pension. The benefits of doing this is that your company would then pay rent to your pension scheme, rather than to a third party landlord and there is no tax on rental income or property value growth within the pension. Selling a property held in a SIPP will not trigger capital gains tax (CGT) because any growth in the property's value belongs to the pension, rather than to yourself or your business.
A SSAS is a small occupational pension scheme that is set up by the directors of a business who want more control over the investment decisions relating to their pensions and in particular, to use their pension plans to invest in the business. As such, each member of the SSAS is usually a trustee.
A SIPP is a personal pension plan set up by an insurance company or specialist SIPP operator where the member has greater control over the investments. Anyone can take out a SIPP providing they meet the provider's eligibility requirements. These are usually based on a minimum fund size because of the higher costs involved in running a SIPP compared to a standard personal pension.
You mention that you haven’t paid into a pension in the last 5 years – do you have pensions from before then? It may be that these could also be used towards the property purchase, but you need to take specialist advice to see if this would be appropriate.
With regards to the money in the business, the maximum contribution you can make to your pension each year to keep within the annual allowance is £40,000, but as you correctly say, you can carry forwards unused allowance from the last 3 years so this would allow for a contribution of up to £160,000 now assuming no other payments have been made.
A SIPP or SASS can borrow up to 50% of its value, so if you contribute the £140,000 cash into the pension as an employer contribution (taking advice from your accountant first to confirm this is viable) and then borrow 50% of the pension value, this gives you a sum of £210,000 available for investment into a commercial property. Given the purchase price of £295,000 you are not going to have enough for this at this time it would appear. One option would be to wait a couple more years, making the maximum contributions of £40,000 per year (if affordable) into your pension and then revisiting this. Or you could consider purchasing the property jointly via your pension and your company if the business has the funds available, or will be able to secure a loan on the property.
This is a very complex area and will need input from a financial planner, your accountant, and commercial lenders so I suggest you seek full advice before proceeding with this course of action.