Commercial Property Purchase
MEET JOSEPH AND LYNNE
Directors Joseph and Lynne wanted to be mortgage-free and required commercial property purchase advice. They were exploring the option of using their company’s cash reserves in order to do so but were worried about the tax implications.
Joseph and Lynne are 43 and 40 respectively. They are directors of their limited company, married and have three children.
Having purchased their home three years ago, they owe £200,000 on the mortgage, savings of £10,000, and £190,000 in personal pensions (contributions via their limited company).
Godiva Wealth Management specialises in providing a professional, high quality, bespoke advice service to both private and corporate clients
WHAT DID JOSEPH AND LYNNE NEED HELP WITH?
• Joseph and Lynne desired to become mortgage-free as quickly as possible and wanted to raise £90,000 for the higher education of their children.
• The business has solid foundations and holds a healthy £300,000 in cash. Joseph and Lynne knew they could draw some of these business funds but were worried about triggering a tax liability.
HOW DID WE HELP?
Our company completed a budget planner and cashflow model which established the level of income and capital Joseph and Lynne needed to achieve their goals. We analysed their attitude towards investment risk, how accustomed they were to investing, and their capacity for loss. This was to ensure that any recommendations would be suitable.
We concluded that they should pursue the following actions:
• Transfer their existing Personal Pensions to a new Self Invested Personal Pension (SIPP).
• Make a single company pension contribution of £52,500 each, spread over two pension input periods.
• The new SIPP, now worth around £295,000, could then purchase the commercial property from Joseph and Lynne.
The couple used the proceeds from the sale of their commercial property to clear the mortgage and ringfence funds for the children’s university fees.
The limited company’s commercial property is now in their pension fund and they pay rent to their pension fund. As the commercial property is within the pension fund there is no income tax to be paid on rent and no capital gains tax when they come to sell it. The fund is also protected should they or the business ever get into financial difficulty.
The rent and any future pension contributions will be invested in a suitable risk-managed investment portfolio, held within the SIPP
Their £105,000 pension contribution reduced their corporation tax liability, saving the business £21,000 in tax.
*If you require Commercial Property Purchase Advice please do not hesitate to contact us.