With businesses facing uncertainty over the length of time before trading returns to pre-Covid-19 levels and dividends in quoted stocks and shares being cancelled, business owners could support their cashflow by selling their business property to their pension scheme and renting it back. But how do you release funds from your pension?
Releasing funds from your pension to purchase your business property from your company releases capital to your company which is otherwise tied up in stock markets, currently performing poorly, giving your business much-needed funds to ride out the current business climate without diminishing the value of your pension.
Check that your business property is held in the name of your company or business and that your pension funds are held by your chosen SIPP provider which will purchase commercial property, which most will do. Take advice from your Independent Financial Adviser (IFA) to help with this. If you have to set up your SIPP from scratch you should be prepared to allow about 3 months before it is ready to start the property purchase.
Obtain the information from the SIPP provider and complete the forms which they need to start the purchase process. This may include obtaining a valuation of the property by a professional valuer who is approved by the SIPP provider. The valuation will provide you with the open market value of the property, which is the price your business will receive for the sale, and the open market rental value which is the starting rent your business will pay to the SIPP provider for future use of the property after sale.
Appoint solicitors to act for the company and choose solicitors from the SIPP provider’s panel to act for them in purchasing the property and granting the lease back to your company. The conveyancing procedure is the same as any other purchase, though the SIPP provider has more regulatory control to comply with, which can make the experience feel slow and inflexible. Even though the seller and the beneficiary of the pension scheme are connected the purchase is carried out at arm’s length without taking short cuts or skipping searches and enquiries a prudent purchaser with no connection to the property would make. However, more often than not exchange and completion are simultaneous, so once the procedural and regulatory steps have been carried out there are no further delays to completing the purchase and releasing funds to your company.
The new lease to your company will have been set up at completion of the sale and rental income starts to fall due to your pension scheme. The annual rent going into your pension scheme will steadily increase the value of the fund again. If the purchase price received is more than needed to support your business, you can think about refurbishment or improvements to the property, or adaptations for the new post-Covid-19 working environment. Repairs and insurance of the property remain an expense of the business so the pension fund is not depleted by these outgoings.
*The information set out in this article is correct at the date of publication (19 May, 2020). The effect of coronavirus on businesses is a fast-changing area and so it is important to obtain legal advice to ensure you are properly protected. Visit our Coronavirus (COVID-19) Hub for more Leading Insights.
Steele Raymond offer specialist pension property advice and expert legal services to Independent Financial Advisors, Professional Pension Trustees and Private Investors. If you have any questions regarding the impact of the Coronavirus upon your business or are seeking up-to-date legal advice for the pension property investment, contact Caroline Probert on 01202 294 566 or email CarolineProbert@steeleraymond.co.uk.
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