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Commercial Property Purchase

How does a pension fund buy a commercial property?

Your pension fund gives you the option to buy and invest directly in a diverse range of property related assets, including land and buildings. For example:

  • Commercial property - offices, warehouses & retail outlets
  • Development land
  • Farmland
  • Forestry
  • Hotels, care homes and public houses

Having the ability to access lending may be extremely important to enable you to purchase the property asset you require. Subject to meeting the lending criteria you pension fund may borrow up to 50% of its value.

Another attraction is the ability for you and other pension plan holders to pool funds to buy a commercial property as a joint investment. This increases the size and value of the assets under consideration.

With our experience we can show you the many advantages of purchasing commercial property assets through your pension.

Lets have a look at a typical scenario

A business owner has several pensions worth £100k, which are consolidated into the Pension Plan. In addition, the business has surplus cash of £100k earning minimal interest and this amount is transferred as a pension contribution into the business owner’s Pension Plan. The Pension Plan purchases a commercial property at a price of £250k for use by the business and takes out a mortgage for £100k, 50% of the Pension Plan’s  assets.

The business rents the property and the rental payments less the mortgage repayments can be used to top up the Pension Plan.

What are the benefits to the business owner?

  • If the commercial property is sold there is no Capital Gains Tax (CGT) Liability.
  • Following the Pension’s purchase, any capital growth in the property is exempt from CGT.
  • Pension assets should fall outside of your estate for IHT purposes.
  • The rent paid into your Pension, grows free of income tax and CGT.
  • The rent paid by the business to the Pension should be allowable as a business expense, reducing the tax you pay on business profits.
  • As part of the Pension, the assets would not generally be accessible to creditors even in the event of bankruptcy.
  • It is simple for the Pension to sell all or part of the property to another investor.
  • Your Pension can buy freehold, leasehold or commonhold commercial property in the UK.
  • Company contributions into the Pension plan will be classed as an expense to the business and attract corporation tax relief.

Are there any potential drawbacks?

  • Lack of diversification could be an issue if the property constitutes a high proportion of the overall Pension assets.
  • The sale of a property could be at an inopportune time if a sale is required to pay benefits, both in terms of being able to sell the property and obtaining the optimum price.
  • The property will need to be valued when benefits are drawn or loans are considered. Such transactions are chargeable to the Pension.

Are there any other considerations?

  • The Pension Plan will have to register for VAT if the property is not VAT exempt.
  • The rent paid by the business must be at a commercial rate.
  • Interest payable on any loans will not attract tax relief.

Are there any fees?

Fees can vary significantly dependent on the complexity or otherwise of the property. Broadly the fees will include:

  • Solicitor and other legal fees
  • Stamp Duty Land Tax
  • Surveyor fees
  • Borrowing arrangement and other fees
  • Specialist reports such as environmental, contamination and hazardous materials
  • VAT if applicable
  • Insurance
  • Ongoing property management
  • Pension provider and adviser fees

All the above fees would payable from your Pension Plan.

How does the commercial property process work?

Of course, every purchase has its own unique circumstances and challenges, but the fundamental steps and procedures will be similar in most cases.

This flow chart shows how the process would play out in most cases:

In summary, there are many advantages in purchasing property assets through your pension. As specialists, Advizertech will provide expert advice and help you at every step along the way.


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