John Keenan, Corporate Development Manager at Xafinity SIPP & SSAS, runs through a commercial property case study and outlines the pros and cons of such transactions…
The famous Mark Twain quote “buy land, they’re not making it anymore” is a sentiment that still drives many an investor. And so is the desire to invest in something tangible, say bricks and mortar.
I might also suggest that despite the public high-ground some take on payment of taxes these days, the vast majority of us are keen to use entirely legitimate tax efficiencies to reduce what we pay.
The simple case study below will hopefully illustrate the opportunities there are for SME clients who already own commercial property to maximise their returns tax efficiently within a pensions’ wrapper.
Client scenario
Mr and Mrs Clarke are 45 and 42 years old respectively. They are directors of an SME manufacturing business, Beta Ltd, which operates from a well located, company-owned premises.
It is a substantial asset but its value is inaccessible to the business, and with a desire to make the best of the recent exchange rate moves they are keen to invest further in their business.
Mr and Mrs Clarke have heard about investing in commercial property through their pension and have approached their financial adviser to ask if it would be possible to buy their existing business premises from their company.
The property
- The property has been independently valued by a Royal Institution of Chartered Surveyors (RICS) registered valuer at £180,000.
- The same valuation states an open market rental valuation of £15,000 per annum.
- The company accountant confirms that VAT was not paid when their company purchased the property and VAT is not being charged on rent.
- Mr and Mrs Clarke want to lease the property back to Beta Ltd by way of a five-year lease.
