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Good morning,

I am quite dubious about posting on here, because the last time I asked a question I was shot down in flames.  After reading a few questions too, I have noticed that a lot of people on here use the answers to attack the other persons seemingly lack of knowledge.  I do hope that people will be kind!  I am an MAAT and therefore not regulated to give investment advice to my clients.  However, this is purely  for mine and my husbands benefit. 

A few months ago I went on a seminar regarding pensions and popping commercial property into a pension fund.  I am trying to get my head around if I have understood it correctly so would appreciate any sound feedback.  It is my understanding that if a limited company set up a pension fund (i.e mine and my husbands)  we can then transfer the commercial property currently owned by the ltd company into that.  The pension fund can then rent back the property to the ltd company which would then reduce their taxable profits but the pension fund pays no tax on the rental income.  Have I misinterpreted this?  If not - what is the catch !!

Secondly, if the pension fund then sells the property there is no CGT -have I misinterpreted this or if not, again what is the catch?  Do we have to reinvest the proceeds of sale into the pension fund?

any advice on this would be greatly appreciated - we have a financial advisor and I would at least like to know in my head what is what before we go and see him.

It is a few months since the seminar and I have unfortunately been of very ill health so have not had time to get my head around or revisit it.  I have tried looking on the internet but I just get articles from 2012 through to 2014!

Thank you

 

 

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02nd Nov 2017 12:33

Your summary is basically correct, the two main drawbacks are that you may have to pay CGT on any property you deposit in the pension as the transaction has to be at market rates and the funds accruing in the pension fund from rent or capital appreciation are still subject to the normal rules should you wish to take them out, so while it's all tax free to the pension fund, you'll still be taxed on it before you can spend it all on stock car racing and fancy vegetables.

I'm sure your advisor will be able to help you determine if it's a good idea, I certainly wouldn't recommend doing anything without discussing it with a qualified professional.

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to Duggimon
02nd Nov 2017 13:36

Thank you so much. Yes I agree, I do need to talk to the professionals , I just needed in my head before I speak to him. As daft as it sounds, if I half understand it before speaking to him I can hope to fully understand after! Thank you :-)

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02nd Nov 2017 13:09

Also can often be silly fees from various professionals once a pension fund & trustees get involved. Some get left with the feeling that they no longer have full control over the property.

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By PBH64
to Wanderer
02nd Nov 2017 13:16

Some of that comes from being member of the scheme, the employer and a trustee! You do own the building; but which you is it?

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to Wanderer
02nd Nov 2017 13:37

Thank you , that one is food for thought!

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02nd Nov 2017 13:39

Thank you so much everyone - I really appreciate your helpfulness :-) my hope and trust in accountingweb has been restored

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02nd Nov 2017 22:39

su-AT-1forall wrote:

Have I misinterpreted this?  If not - what is the catch !!

>

The "catch" is that pensions income ultimately drawn is taxable (subject to any tax-free cash amount).

Another "catch" is that you need a pension fund with sufficient assets in it to purchase the property in the first place (subject to some borrowing allowed). Those assets come from contributions which are subject to annual and lifetime limits.

The final catch is the large amounts that will be swallowed up in initial costs (manager's fees, legal fees, stamp duty, capital gains tax, mortgage penalties) and ongoing scheme management costs.

Apart from that it's a 'no brainer' ....

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By Ruddles
to Accountant A
02nd Nov 2017 23:13

Depending on property value, available allowances etc, an in-specie contribution may be worth considering.

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By jcace
02nd Nov 2017 23:17

"if the pension fund then sells the property there is no CGT -have I misinterpreted this or if not, again what is the catch? Do we have to reinvest the proceeds of sale into the pension fund?"
The property belonged to the pension fund, so if the property is sold, the proceeds belong to the pension fund, not to you.

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By DJKL
02nd Nov 2017 23:44

From experience the key with property in any form of pension scheme is critical mass, a large number of costs always seem to arise and often they do not discriminate that the property is worth £100,000 or £1,000,000, the professional costs turn out similar, the net effect is often that the frictional costs can be, in percentage terms, quite hefty with lower value properties.

In addition extra costs can arise, as an example we got stuck with a fee to assess for ground contamination at the site of the units we bought from ourselves, whilst we had done work re the site before the units were built (we had obtained the planning re the entire development a few years before and had sold to developer who had built and sold back to us), and knew there were no issues, we still paid out from memory £1,000 plus vat to get told what we already knew, the pension trustees worked from their checklist, no paper no scheme purchase.

I think pensions owning property can have benefits, but only if the right properties. Re the one mentioned we went in and out and doubled our money on them in circa 6 years, but in the process blew circa 20% of the gain on admin costs, and we bought at a good price and knew what we were doing (property is what we do).

These ideas are often what I would call Everest climbing moments, you buy something not because it was the right property but just because it was there.

I would initially do an evaluation of how many years it will take for the tax benefits (relief for rent/ initial contribution etc) to overcome the frictional costs of the move (legal/professional/tax) and also catch the extra running costs in the scheme for these years, what is the initial payback period just re these and how many future years will the assets be stuck in the scheme. (years before pensionable age e.g.how many years political risk re say still having tax free lump sums on exit)

I would also, just now, wait until after the budget on the 22nd, you will likely never get it in there before anyway and I would accordingly not start the process before seeing how the pension landscape lies.

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