Claudia is the sole director and shareholder of Claudesigns Ltd, an interior design and bespoke furniture supplier with profits of £200,000 p.a. and shareholders’ funds of £400,000.
When Claudia established the business, she purchased a warehouse to operate the business from for £100,000 and this is now valued at £250,000 with annual rent paid by Claudesigns to Claudia of £6,000 p.a..
Claudia wants to purchase a family holiday home in Cornwall for £500,000. She’s been offered a mortgage of 70% of the value of the property from a bank but requires a £150,000 deposit.
Claudia could draw additional dividends this year from her shareholders’ funds but this would incur a very substantial income tax charge. Her accountant suggested that Claudesigns establish a SSAS, make an initial contribution of £150,000 this year and use the funds to purchase part of the warehouse that she owns.
By purchasing the property, Claudia would receive £150,000 from the pension fund in return for 60% of the property. The pension fund would then receive market rent, which would be received tax-free. Claudia will review next year whether she wishes to sell the remainder of the property to the pension fund.
The above allows Claudia to use the company’s funds to assist with the purchase of the property in Cornwall, minimizing the tax due in doing this and retaining control of the premises that the company operates from.