Unlocking the Potential of Your Pension Fund: A Guide to Commercial Property

As a business coach, I often see business owners overlooking one of their most powerful assets – their pension fund.

Here’s a question that frequently sparks interesting conversations in my coaching sessions: Wouldn’t it be great if instead of paying someone else rent for your business premises, you could be paying it into your own pension fund?

The Hidden Opportunity

Many entrepreneurs view their pension funds as dormant pots of money just sitting there until retirement.

Through my work with business owners, I’ve seen how transformative it can be when they discover they could leverage these funds to purchase their own commercial property.

Picture this scenario: your pension fund owns the property your business operates from, and your company pays rent to your pension fund. One of my clients calls this their ‘Virtuous Circle’ of Property Investment – and it’s easy to see why.

Key Advantages to Consider

Through working with business owners who’ve taken this approach, I’ve seen several key benefits:

• Tax-Free Capital Gains: Any increase in the property value is free from capital gains tax
• Tax-Free Rental Income: The rent collected grows free from income tax
• Business Expense Deductions: Rent payments are a deductible business expense
• Tax Relief on Contributions: Pension contributions receive tax relief
• Inheritance Tax Benefits: The property sits outside your estate for inheritance tax purposes
• Retirement Income: Future income can be funded from ongoing rent receipts
• Protection from Creditors: The property is ring-fenced from creditors

Understanding the Borrowing Potential

One concern I often hear in coaching sessions is “My pension isn’t big enough.” However, you can typically borrow up to 50% of your pension fund’s net value. This means you might not need as large a pension pot as you think to make this work.

Leveraging Existing Properties

If your business already owns a commercial property, there might be an opportunity to sell it to your pension fund.

One of my clients recently did this, releasing capital back into their business while securing their pension’s future growth.

Important Considerations

While coaching numerous businesses through this process, I’ve learned there are several key factors to consider:

1. Regulatory Compliance: Everything must be at arm’s length and commercial
2. Access Restrictions: No accessing funds until retirement age (currently 55, rising to 57 in 2028)
3. Additional Costs: Setting up and managing a SIPP or SSAS involves expenses

Practical Steps Forward

Here’s the roadmap I share with my clients who are considering this strategy:

1. Find the Right Commercial Property

• Conduct thorough due diligence
• Check for any hidden issues

1. Account for Purchase Costs

• Include all fees and taxes
• Budget for VAT if applicable

1. Value Existing Pension Funds

• Get accurate transfer values
• Understand your true position

1. Consider Cash Contributions

• Calculate potential additional inputs
• Assess company contributions

1. Assess Rent Affordability

• Typically around 10% of property value
• Must be sustainable for your business

1. Combine Available Funds

• Consider spouse or shareholder pensions
• Calculate total purchasing power

1. Evaluate Overall Feasibility

• Assess if combined funds and borrowing are sufficient
• Include all costs in calculations

Getting Professional Help

While I can help you understand the business strategy aspects of this decision, you’ll need professional financial advisors to implement it. This includes:

• Pension specialists
• Commercial property experts
• Tax advisors
• Legal professionals

The Strategic Advantage

Many of my clients have found that using their pension fund to buy commercial property has been transformative for both their business and retirement planning.

It creates a powerful alignment between your business operations and your long-term financial security.

Ready to Explore Your Options?

If you’d like to discuss how this strategy might fit into your broader business plans, let’s have a virtual coffee. While I can’t provide financial advice, I can help you understand the business implications and connect you with appropriate professionals for the technical aspects.

Best wishes,
Jamie

Risk Warning: This information is not financial advice. Investments can go down as well as up; you may not get back the original amount invested. Projections are illustrative and actual returns may differ. Consider your risk tolerance and financial goals. Seek advice from a qualified financial advisor. Past performance is not indicative of future results.