How to make commercial rents fund your retirement

Tees Business Digital Media Pack

The Active Spirit Live is a new monthly video series where industry experts, clients and friends of Active are invited to discuss hot topics, emerging trends and offer guidance in the world of finance.

In the first session, managing director Karl Pemberton was joined by MD of Focus on Success, and client of Active, Gary Lumby MBE, and Waltons Clark Whitehill’s director and head of tax, George Hardey, to discuss the rise in popularity and benefits of using commercial property to fund your retirement.

Here are some highlights from their online discussion…

Karl: Gary, what were your main drivers in buying commercial property as a way to fund your retirement?

Gary: My wife and I bought a commercial property in our own names, we thought that was the best thing to do. It was only later we realised we could use our pension funds to purchase a property far more tax efficiently. It was only by getting the right advice from Active and from our accountants that we considered it.

Karl: We’ve certainly seen an increase in the number of clients considering this. George, as the tax adviser, have you come across a growing number of owner occupier businesses doing this?

George: Yes. It’s much more on people’s radars now and it’s always a point on our tax planning chart for owner-managed businesses.

Karl: These things take time. How far in advance would you say that business owners need to start considering this?

George: Whether you’re starting from scratch or if there are existing funds (in the pension), you’re tying that in with the tax relief available for pension contributions so it can often be that you’re bringing together a few years of pension contributions to give you the pot you need to carry out the purchase. Early planning is therefore essential.

Karl: What are the tax advantages of doing this?

George: If you’re the owner of the property personally and the business is paying you rent, that rent is part of your taxable income and over time if the business is successful, you’re probably paying higher rate tax on the rent. The option of getting the property into a pension scheme puts it in to a tax-free environment. The rent in the hands of the pension isn’t liable to income or corporation tax, and increases in the value of the property will be free of capital gains tax.

Karl: There may also be some cash flow benefits and savings for the business too, George?

George: It could be a cash flow saving and also a way of maximising the size of your pension pot because there have been restrictions on what people can put into their pensions, particularly for higher earners. When you’ve got the property into the pension, the business can still continue to pay pension contributions, but the rent will start to accumulate within the pension scheme, boosting the funds.

Karl: Gary, you have been through the process. Is it challenging and would you do it again?

Gary: I’d certainly do it again. I’d start thinking early, though. Finding the right premises and the legal transaction can be time-consuming. It’s not as straightforward as buying a property normally, but it’s a tax efficient and safe investment for the future – but take the right advice from your financial adviser and your accountant.

To watch the full video on YouTube, search ‘Active Chartered Financial Planners’.

The content of this blog is for information only and must not be considered as financial advice. Active always recommends that you seek independent financial advice before making any financial decisions. The Financial Conduct Authority does not regulate taxation advice. Active recommends you speak to a tax adviser/accountant for this and would be happy to introduce you to one of their close partners.