I have a small business using offices I own with my fellow directors. We have a workplace pension scheme but currently we’re just contributing what’s compulsory. At a recent directors’ meeting, we decided to explore ways to make our pension arrangements better for us and the business. I understand we can put the offices into the pension scheme. Is that right?

Lowestoft Journal: Matthew Beck is a Chartered Financial Planner with Smith & PinchingMatthew Beck is a Chartered Financial Planner with Smith & Pinching (Image: Smith & Pinching)

Matthew Beck of Smith & Pinching responds:

You and your fellow directors can indeed put your offices into your pension scheme. You would need to use either a Small Self-Administered Scheme (SSAS) or a Self-Invested Personal Pension (SIPP) in order to invest in commercial property with your pension savings. SSAS and SIPP schemes have more flexible investment rules than standard personal pensions. However, they are a more specialised form of pension framework, so it is important that you understand how they work and the relevant costs.

Essentially, an SSAS is an occupational scheme set up by the directors of a business with each director a member of the scheme, whereas a SIPP is a personal pension held by the individual director.

Your existing pension savings can be transferred into SSAS/SIPPs to make the purchase. SSAS or SIPPs can borrow up to 50pc of the fund’s value. Alternatively, the premises could be partly owned by the SSAS/SIPPs and partly by you as individuals. Multiple SIPPs owning property is done using a syndicate arrangement.

With your pensions now the owners of the property, your business would pay a market rent to the scheme(s), adding value to your pensions. Importantly, there would be no income tax payable by the pension scheme on the rental income and no Capital Gains Tax payable if the property is sold.

Once the pension funds are established, you can continue to grow your pension savings through personal and company contributions. The funds can hold a diverse range of investments, so their focus doesn’t have to be solely on property.

Setting up the SSAS/SIPPs and making the purchase are complex processes involving significant costs, so please make sure you get independent financial advice throughout to ensure you understand your obligations.

There are drawbacks to this type of arrangement. When the time comes for you to take pension income, you may need to transform your property holdings into deliverable cash, which might prove tricky. It is also important to understand that once the premises are held in a scheme, control of the property passes to the pension trustees and you would need to seek their permission to make any changes, for example.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

For more information please visit www.smith-pinching.co.uk