Have you ever considered the possibility of using your pension to purchase property or land? With property still being a popular and attractive form of investment, many of our clients look to utilise their pension funds to allow them to purchase an asset that can further support them into their later retirement.
A Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS) offer a broader range of investment opportunities than a personal pension. A SIPP or SSAS can allow the client to invest in assets including commercial property, collectives and investment via discretionary fund managers.
Much like with all other pensions, the maximum you are able to contribute to a SIPP or SSAS in any given financial year, is the lowest of 100% of your annual income or £40,000. For company owners, the business is able to look to make contributions of £40,000 annually, regardless of earnings, providing the contribution fits the ‘wholly and exclusively’ test – your accountant can help us to verify this. It is important to remember that contributions made to a pension, are one of the most tax efficient form of savings.
With the annual pension allowance having been reduced over the years, for higher earners especially, pension planning has become much more difficult. Could a SIPP or SSAS look to help you with your retirement planning objectives and make you more tax efficient?
You should always take advice when looking at pension planning, particularly associated to SIPPs and SSAS schemes, as it is not a one-size-fits-all approach. There are many benefits to both and below I have shared an example scenario:
When commercial premises are purchased with a SIPP, a further 50% can be raised via a lending stream. So, for example, if you had £100,000 in your SIPP, an additional £50,000 could be borrowed towards your overall purchase. Your SIPP is then used to purchase the commercial premises and the rental income that becomes payable is then directed into your SIPP. The rental income that is received by the pension is not taxable and also does not go towards the usage of your annual pension allowance. It is important to remember that were this income being generated outside of the pension as a business or personal purchase, the income would be fully chargeable to income tax and therefore reducing the tax liabilities of an income producing asset. It is important to note that although a SIPP offers greater flexibility around its investment options, HMRC has strict ruling on what is and isn’t allowed. Before a SIPP can be set up, the property must be approved by the SIPP provider in principle.
To understand more, please get in touch to discuss further. We offer a no-obligation financial health check, where we are able to help you to understand your options and the benefits that directly link to your personal or business circumstances.
The flexibility of a SIPP or SSAS allows you to spread the risk, especially if some investments perform badly. However, these do tend to have higher costs than a standard pension and active management is essential to maximise the benefits of the wider investment choice on offer. For these reasons, they will not be suitable for everybody and generally only those who are fairly experienced at actively managing their investment should consider this type of investment. The value of a SIPP can fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.
Avail Financial Planning is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products.