Dan Hargreave, who works for a corporate events promotional company, has saved £500,000 in an NSS Solution SIPP, which he took out in 2007. His sister, Zoe Cameron – with whom Dan is very close - and her husband George own and both work in a profitable boutique PR agency.
The agency is seeking new premises and has found a suitable studio which suits its needs, valued at £700,000.
Dan after discussion with Nigel Sloam & Co told his sister that he would consider investing his pension fund to join with her and George in the purchase of these premises and suggests that they may also benefit from acquiring the a property through a pension fund. Zoe and George, at Dan’s suggestion discussed their existing pension arrangements with Nigel Sloam & Co, who discovered that George has various insured pension plans totalling £260,000 while Zoe has saved up £110,000 in a plan – of which George was previously unaware. None of these plans offers any guarantees or imposes penalties on transfer.
After discussion with Nigel Sloam & Co, the PR agency establishes a Small Self-Administered Scheme (SSAS) initially for George and Zoe into which all their existing pension savings are transferred. Additionally, the agency makes a pension contribution of £40,000 for Zoe and George, on which it obtains corporation tax relief. As a result, the SSAS has total funds of £410,000. Nigel Sloam & co confirm that the studio could be bought jointly between Dan’s SIPP and the new SSAS on a 50/50 basis and that, as it has no residential element, it is acceptable for purchase by member controlled pension schemes. Nigel Sloam & Co advise the two schemes, however, to enter into an agreement before purchase governing how the property would be dealt with in the event that either scheme needed to sell its interest, or required access to the funds invested.
The design agency agreed to lease the premises at a full market rent from the new joint owners, which is tax deductible against the agency’s profits. Any subsequent gains on the sale of the premises would be achieved Capital Gains Tax free in each scheme. The premises are acquired through funds which have received tax relief, rather than from funds which have suffered tax. Further, the rental income and any capital gains on a sale should accumulate free of tax within the pension schemes.