In these hard times, in an uncertain market a major opportunity for individuals and small businesses is still being ignored in pension planning.

Changes in legislation on A-day which allows connected parties to purchase assets from multiple sources are still not being explored by the financial planner market.

The recent increase in funds with the relaxation of the protected rights rules, an estimated £40 billion plus, gives these opportunities more strength in the current market.

Purchase of Commercial Property

In the UK business market as a whole many commercial properties are owned by the person or the company that works out of them. Pre A-day if the property was

brought outside of a pension then it could not be used to increase the fund either by buying into the assets or by using it for in-specie contributions.

From A-day the connected party rules were removed and this meant that every person or small company that owns a commercial property can review their options going forward.

Self Invested Personal Pensions have seen a change in pension planning from A-day and now that protected rights monies can be transferred into SIPPs the funds that can be used for purchase of commercial property have significantly increased.

The rules on borrowing through a Self Invested pension changed on A-day. The pension can borrow 50% of the net fund, this can be added to the fund and used to purchase assets.

Basic case study;

Property worth               £ 300,000 owned by individual or company

Client pension fund        £ 200,000

50% Fund Gearing         £ 100,000

Property can be purchased from individual or company.

It is not necessary to purchase the full property into the pension.

What can this achieve?

• Cash from pension scheme can be used in the company or;
• Cash from pension scheme is paid to individual
• Rent is paid in gross to the pension scheme
• Rent is an investment return and does not affect pension contribution levels
• Rent can be taken as income in retirement
• Property free from CGT on sale from pension

In these times of uncertainty a cash injection into a small company can make a considerable difference. The property asset is not lost to an un-connected party.

The lending is to the pension scheme and not to the company so the rent that will be paid by the tenant goes into the pension gross and services the repayment of the borrowing. Under the current rules with gearing at 50% of the net fund this repayment is normally set over a 5 to 10 year period.

If the property is owned by an individual then the pension fund purchases the property and the individual receives the cash. For some people at the moment this can prove attractive.

One very important point to remember is provided you can find a provider that will allow "Split ownership" it is not necessary to purchase the full property into the pension scheme. This can allow more flexibility when looking at smaller pension funds and does not preclude clients or companies that own a large or relatively expensive property from considering using their pension funds in this way.

If a property is owned by two or more parties then the rent is paid in proportion of the percentage owned by each party. When an individual wishes to take benefits provided there is sufficient liquid assets held in the fund they can take their 25% tax free cash from this part of the fund. It is not necessary to sell the property at this point as the rental income can be taken as pension and the property or the part owned in the pension scheme can be sold on at a later date.

This type of pension planning can really make a difference to people's ability to provide for themselves in retirement. The tax benefits are all beneficial and can increase asset values by 20%.