A step by step guide to using your pension to purchase commercial property

Commercial Property

Using your pension to purchase commercial property is not uncommon, however careful planning is needed to ensure you have everything in place.

If you are considering purchasing a property within your pension, then it is not uncommon to start the process several years before you ultimately purchase the property.

Getting started

Working with a Financial Planner will help you to understand your current position, including whether your existing pension provider will allow a commercial property to be held. Not all pension schemes allow such an asset to be held. If your current provider doesn’t, then  a Financial Planner can assist you in selecting a suitable provider.

Next you need to consider if there are sufficient funds within the pension to assist with the property purchase. If not, then you need to understand the options available to you to increase the funds, such as consolidating other pensions to accumulate sufficient capital to purchase the property. At this stage it is important to determine if you are going to require funding to finance the purchase and engage your legal team, so that they can work with your financial team to check over and advise on any terms that you agree with a seller.

Finding the premises

Once the finances are in place it is time to get your legal ducks in a row. You will first need to identify the property you wish to purchase. This could be a property you already occupy, and your landlord is keen to sell, or it could be a property you have seen on the market. If you don’t already have a property in mind, it is worth engaging a Commercial Property Agent to assist you with your search.

What to consider?

Will your business be the sole occupier of the property you intend to purchase or are you planning to let to third parties? If the property you intend to purchase has tenants in situ, will they continue to lease the property?

If so, it would be prudent to have your legal team conduct an initial review of the basis of any current tenants of the property. It is important that any commercial tenancies are properly documented and on satisfactory terms.

With good financial planning you can maximise benefits of holding commercial property within your pension while you are still employed, as well as when you elect to retire.  Important issues at retirement such as tax-free cash and income requirements need to be understood so that deciding if retaining the commercial property is suitable to meet these objectives.

Benefits of using your pension to purchase a property for your business to operate

There are several benefits for holding the property within your pension, especially if this is the property from which your business operates.

You will know how successful and profitable your business is, so you have a greater control over the rental income payments that will be paid to your pension plan.  These rental payments are not treated as pension contributions, so you can still maximise your personal contribution allowances, thereby increasing the value of your pension pot.

If unfortunately, your business does run into financial difficulty then having the business premises held within your pension plan will protect this asset from any business creditors. In addition, there are tax benefits of holding the property in your pension.  If you elect to sell the premises at some point in the future there will be no Capital Gains Tax to pay and if, sadly, you were to die, then as the property is in the pension, it does not form part of your estate for Inheritance Tax purposes.

Key points to keep in mind as a property owner

The first is that you will not personally own the property – the property will be owned by your Pension Fund. Each pension provider will appoint a professional trustee who will have legal obligations in respect of any property you purchase.

The involvement of your professional trustee will be required in any matter that involves the Property. For example, signing the legal documents or seeking their prior approval on any steps you wish to take that may affect the property, such as letting out space to a third-party tenant.

You will need to ensure that you comply with all legal requirements. regarding key issues such as lease agreements, Energy Performance Certificates, management of asbestos, rent reviews and health and safety and Fire Assessment at the Property.

Finally, you should note that any tenancies should be properly documented and drawn up by a solicitor. There are often additional clauses that a professional trustee will require to be inserted into such documents and it is important that this is done correctly to meet their requirements.

Maintaining good communication with your professional trustee and legal team is key to ensuring the legal side of your ongoing management is smooth and hassle free.

The legal process

The professional trustee will have very strict requirements about what is needed and the level of detail they require from your legal team and so it is important to obtain as much information as possible about the property you are purchasing at the start.

Your legal team will also order “searches” against the property, which should reveal lots of important information (such as the planning history for the property) and raise enquiries with the Seller’s solicitor.

Your professional trustee will want to make sure that all legal compliance is in hand, for example, the property has a valid Energy Performance Certificate, an Asbestos Report, Health and Safety file and Insurance. Your legal team will be asked to review the information provided and ensure that this is in place. They will also receive draft documents from the Seller’s solicitor and seek to review, negotiate and agree these.

Your legal team will then report to you and your professional trustee on all the information they have received together with a summary of the draft documents that you will be entering into. This is so that you can both make an informed decision about the property you are buying.

The legal team will be entrusted by the professional trustee to ensure that the documents meet their requirements and that all information received is suitable and in accordance with their requirements.

Buying any property can be stressful but with a good support network of financial planners and legal professionals, much of the stress can be removed and the purchase concluded as quickly and efficiently as possible.

If you are interested in using your pension to purchase a commercial property, then speak to our dedicated team of experts today.

Jenna allsop

Commercial Property Solicitor Jenna Allsop 01225 750 090 or email jenna.allsop@mogersdrewett.com or

Chartered Financial Planner Sean McCabe on 01225 308333 or email sean.mccabe@mogersdrewett.com.

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