HMRC umbrella company ‘checking tool’ looms for workers
Umbrella company consultation response and guidance due from HMRC, as more details come out on Tax Administration and...
READ MORE
SPONSORED: Mattioli Woods plc Wealth Management Consultant Megan Leach shares a case study detailing how business owners can reroute the significant costs of commercial premises into long-term pension saving.
As a business owner, something of highest priority usually involves minimising costs where it is prudent to do so. One unavoidable cost for businesses that require a premises such as an office space or factory, is the cost of renting or owning this space. Something quite often overlooked is the opportunity for a business owner (with careful planning) to reroute this significant cost into a long-term pension saving.
Even successful and well-established businesses often rent their premises from a third-party, meaning hard-earned revenue builds the wealth of the landlord, rather than owners, investors or employees. We have all heard the phrase, ‘renting is dead money’.
Naturally, paying rent or ‘dead money’ to line someone else’s pocket is unappealing to many – one hugely effective piece of planning we work on with clients is purchasing the business premises within the owners’/directors’ pension fund – thus meaning that ‘dead money’ becomes a tax-efficient investment for the future rather than a cost leakage to a third-party! To put it simply, the individual would be ‘lining their own pocket’ for the future, rather than an unknown landlord’s pocket.
David owns his own business providing social media marketing services. The business has grown rapidly, now employing a team of seven people. The business currently rents a modern office paying circa £3,500 per month in rent.
Prior to setting up his own marketing business, David has been employed in multiple roles and over this period accumulated several pensions totalling £500,000. However, he hasn’t contributed to any of the pensions over the last three years since setting up his own business.
With plans for growing the headcount requiring more space and David conscious he is paying a large amount of money each year to his landlord for the office, he would like to explore planning options.
So, he has found an alternative office space that would suit the business to be settled in long term and is available to buy for £550,000, which appears to be great value. However, the business does not have £550,000 of cash with which to purchase the office space without affecting cash flow and possibly hindering its ambitious plans for growth.
As David already has pension savings with a value of circa £500,000, we would be able to explore this option to fund his pension and purchase the commercial property (office space) via his pension savings. The solution for David would be as follows:
So why is the above scenario (or similar ones) such clever planning, what do you gain?
It is important to remember that purchasing a commercial property within your pension is not appropriate in every circumstance and there are a number of things to bear in mind, such as:
Although there are circumstances when this may not be advisable or feasible, should you and your business have the means to do so, then purchasing your business premises is a great way to reduce your corporation tax bill, stop sending hard-earned revenue to third-party landlords and in turn also grow your pension pot for retirement.
– Megan Leach is Wealth Management Consultant at Mattioli Woods plc.