“Paying rent is money down the drain” - The ins and outs of a SIPP purchase, Part I

“Paying rent is money down the drain”

A phrase often uttered by business people as they write out another rent cheque which can lead their thoughts drifting towards owning their own premises.  Rent free commercial property - a luxurious sounding prospect?

Well of course nothing is so simple but that’s not to say that it’s not impossible.

Paying rent ought not to be a waste because the premises ought to be working for the business and giving value for money.

Being the proprietor of ones own premises can sound attractive but is it right for everyone?

“Maybe the business could buy a building?”

This way, the liabilities all rest within the business but so do any gains in value.  Historically and over a long period, property increases in value and there are tax implications to extracting that value.

“Perhaps we as directors of the company could buy the property and put our business in.  That’s a good idea, isn’t it?”

Well quite a good idea.  But as a landlord and tenant relationship will exist, there ought to be a lease and it ought to be on sensible commercial terms, so that it will withstand scrutiny by interested authorities.

An alternative would be for the directors to use their SIPP (self-invested personal pension) to buy the property.  This carries with it some significant tax advantages if done the right way.  However, it has to be remembered that the owner will be the pension trustees and not the directors.  They can be the same people but there are rafts of rules governing the conduct of pension funds.

Over the next few weeks we will look at each aspect of purchasing a commercial property from the perspective of the board of an SME and try to explain the options and why each one may or may not be right for a given set of circumstances.