A client wanted to purchase a commercial property for use within his business; our colleagues at Alliotts suggested he might do so by using his pension fund to achieve this in the most tax efficient way.
However, when he was introduced to us, he had insufficient funds in his pension plan to allow this. Fortunately, the business was in a position to make additional payments to increase his pension fund although he was concerned that the company’s contributions could not exceed the current annual allowance (£40,000 2014/15).
In fact, by using a combination of the “carry forward” rules and an adjustment to his “pension input period”, we were able to facilitate tax relievable company contributions of £230,000 which was more than sufficient for him to use his pension fund to acquire the commercial property. The carry forward rules allow unused pension allowances from earlier years to be utilised in the current financial year and can permit contributions well in excess of the usual annual allowance.
Adjusting the pension input period effectively enables next year’s allowance to be brought forward, further increasing the contributions that can be paid in the current period. Through careful planning and taking full advantage of these rules, we were able to assist our client in purchasing the property in the most tax efficient way which he otherwise would not have been able to do.
Although it was not necessary in this instance, it is worth noting that pension funds can borrow up to 50% of their value to assist with commercial property purchase.