Pension schemes can free up cash for business

Companies with cash-flow problems, particularly during COVID-19, could be sitting on alternative means of obtaining vital funds.

Businesses with their own premises can consider selling the property to their regulated pension schemes to generate additional cash and investment.

Stewart Coles, an Associate Director in the Commercial Property department at Thursfields said: “Certain regulated pension schemes such as SIPPs or SSASs can purchase commercial property using the funds in that pension scheme, and the property then sits in the scheme as an investment.

“These arrangements are often used by business owners to hold their own business premises in their pension scheme, then the scheme rents the property to the company.”

Stewart  said one of the principal reasons for going down this route were tax advantages.

He explained: “Putting it simply, once the property is in the pension scheme any capital growth in the value of the property is tax free, so when the pension scheme sells the property there is no capital gains tax.”

Any rental income going into the pension scheme is also tax free, Stewart said.

He added: “It can be very attractive to a business owner to own their premises in their pension scheme and pay the rent into that pension scheme, so building up the scheme’s funds, rather than having to pay rent to an unconnected third party landlord, or paying a mortgage to a bank.

“Also, particularly in the current economic climate, and during the COVID pandemic, when businesses are maybe struggling with cash-flow and wanting a bit of a cash injection, it can be an opportunity to use funds currently sitting in their pension scheme which maybe they can’t get access to at the moment, to inject that money into the business.”

Stewart stressed that as well as benefitting the business this could also be an attractive investment for the pension fund, as the property will then be an income-producing asset of the scheme and would hopefully increase in capital value.

He said other ways of releasing money from a pension was with a SSAS, which is allowed to lend money to an associated company, using the company’s property as security.

Stewart said usual legal due diligence had to be carried out as if buying a property from a separate party on an arm’s length basis, and warned: “When it’s in the pension scheme you can’t just do what you want with the property, which you might have been able to do when you owned it personally.”

He said the process needed to be led by the financial adviser, and added: “That’s the first step, but from a legal point of view I would say it’s important to get lawyers involved early, to get the paperwork in place.”

Stewart’s Talk Legal video on pensions and commercial property can be watched here:

For further advice contact Stewart Coles on 0121 227 3364 or

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