The majority of those who can afford to, purchase their own home. Most consider renting, ‘dead’ money. Yet in the commercial world most company directors tend to shy away from such a commitment. Is it because the directors do not wish to commit themselves personally? Is it because they do not wish to commit their company to such a financial undertaking? Yet too often those same directors will allow the company accountant to set up a subsidiary company into which loans are made from the main company to keep assets secure should the main company go under. Lets look at some bullet points regarding the above and see how each fairs. Let us for this example take a business with just two directors;  

Contributions

Into a pension scheme are paid gross and attract no Corporation Tax either on the employing company or the receiving scheme. Thus in this case £80,000 of pre tax profit can be paid each year into the scheme (£40,000 per director). The company may also be able to go back and pay any missed contributions for the previous 3 years. Payments into a subsidiary holding company are paid nett of tax, thus £64,000 is received by the subsidiary company. So a £16,000 loss in the first year and then every year there after!!

Tax Free

Broadly speaking pension schemes do not pay any tax. This includes rental income received on commercial property held within the fund. Likewise in the event of a director passing away before age 75 whatever is his share of the pension can be paid to anyone free of Inheritance Tax. Owning shares in a subsidiary company must be included in calculating a deceased estate for IHT purposes.

Secure Assets

All assets of a pension scheme are separate from the creditors of the employing company and creditors of the directors. Thus, if the employer becomes insolvent or a director does personally, the pension is secure. Exactly the same as the subsidiary company but without having to pay all that Corporation Tax.

Borrowings

If we now look at the acquisition of commercial property, just like an individual or a company, a pension scheme can purchase commercial property. Indeed, just like an individual or company, the pension scheme can apply for a mortgage in its own right. Why go down this route? Well once again, a pension pays no tax, so gross rental income is received with no tax to pay. If the scheme subsequently disposes of the property at a profit, no tax pay. Likewise, HMRC permit rental income received by the scheme to be paid out as pension. The current amount of pension that can be secured by a scheme is circa 5-6% if buying an annuity yet rental income can frequently be as high as 9%.

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