The Jonathan Ford & Co Advent Calendar – Day 21
Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! With Christmas drawing ever nearer, we go in search of the tax Holy Grail.
Putting property into a pension scheme
Putting a property into a pension scheme, for example a SIPP, can be a brilliant way to save tax. This only applies to commercial property such as shops, offices and warehouses but once the property is in the pension scheme:
- All future capital gains are tax free
- The rent earned by the property is tax free
- There can be inheritance tax benefits
You can transfer existing pensions into a new SIPP which can then use those funds to buy the property. The SIPP can also borrow up to 50% of the value of the assets it holds. So, a fund of £100,000 could borrow £50,000 and buy a property of £150,000.
You can also transfer into the SIPP an existing commercial property that you own. This needs to be done at market value so you would need to consider the impact of capital gains tax and stamp duty.
Furthermore, your company can rent the property from the SIPP. Again, the rent needs to be set at a market rate. This will give you the best of both worlds: your company gets tax relief on the rent while the SIPP gets it tax free. Just in case you missed it, that’s the Holy Grail of tax planning right there!
Beware: this is an extremely complicated area fraught with risk so before undertaking any of the steps above you will need professional advice from a suitably experienced IFA and a qualified accountant.
