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Use of Pensions in Commercial Property

Our client is a service-based business, servicing mainly the manufacturing sector. The business is operated from a rental unit and the owner had expressed an interest in purchasing a unit so that he could plan for the future as he headed towards a business sale and retirement. Using EQ’s contacts, our client was able to source a piece of land and opted to build some commercial units for letting to other businesses, including his own.

How we helped our client
EQ’s Taxperts considered two major issues at the outset: namely, how could we secure the recovery of VAT on the construction costs and how would the units be owned.

For VAT, we discussed the company opting to tax the units, which meant that all subsequent supplies from that unit would be VATable, specifically an onward sale or a rental. However, the tenants were expected to be VATable businesses and therefore this route was selected.

The trading company did not want to own the units and therefore the company owners decided to sell the completed units to his own pension scheme. The pension scheme opted to tax the properties to ensure no VAT problems on the transfer and the company was able to justify the properties being transferred to the pension scheme at construction cost (approximately £400,000) as commercial leases had not been secured.

Several years on, the lease values of the properties are £65,000 and this is being received tax free by our client’s pension scheme. The pension scheme is growing and the asset value is expected to be around £750,000 just now. On a future sale, the pension scheme would not be subject to capital gains tax, meaning that our client can ensure his scheme is highly meaningful to his retirement.

For more information or to discuss further, please contact the Commercial Property Taxperts.

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