Client Gary Jones, owner of Jones Coach Tours, mentions his coach tour company has a short-term cashflow problem because his bank is reducing his credit line.
The company operates from its own premises, an office with a coach park attached. Jones has decent pension savings and wants to explore transferring his pension funds to a Sipp, which would buy his company’s premises. This would release cash to the company and give Jones’s pension an income-producing asset.
But there is a snag: the coach park is built on the site of an old petrol station and because of the associated environmental issues it is difficult to find a Sipp operator that would take on the property.
Setting up a SSAS
However, an adviser could set up a SSAS for Jones that would take on property just like a Sipp. With Jones Coach Tours acting as the sole trustee of the SSAS, there is no third party that would be concerned with taking on the environmental risk.
The SSAS could then lease the property back to Jones Tours at a commercial rent, payable to the SSAS. Rental income and capital gains within a SSAS are tax exempt.
Normally it would be worth using the SSAS to lend half of its value secured on the premises. This saves stamp duty land tax and avoids crystallising any capital gains. However, since the client needs to release the full value of the property, this is not an option.
When making this recommendation, an adviser needs to tell the client that:
- An independent valuation of the property must be obtained prior to purchase.
- The property will be an asset of the scheme and creditors will not have access to it.
- All property purchases and any lease arrangement must be on a commercial basis.
- Any non-payment of rent or loan interest will adversely affect him in retirement.
Jones Tours can later contribute to the SSAS for Jones’s son as part of a succession planning exercise. The contributions can be used to build up cash in the SSAS to provide Jones with his retirement lump sum, and eventually the whole property will be allocated in the SSAS for his son.
Andrew Roberts is a partner at Barnett Waddingham.