Navin, Richard and Elaine are equal shareholders and directors of Tall Building Ltd, a specialist construction company established 3 years ago. In the current year after directors’ remuneration, Tall Building’s profits are £200,000. Each of the directors spent more than 20 years as employees in the construction industry and accumulated pensions in personal pension plans.
Tall Building was approaching the end of its rental lease and required larger premises to allow its continued expansion. Tall Building’s accountant advised them to consider purchasing some premises.
The directors researched the market and found that suitable premises could be purchased for around £1 million. Initially the directors considered purchasing the property through Tall Building. However, their bank told them they needed a deposit of at least £400,000 before they would consider a £600,000 mortgage and it would be subject to a 2% arrangement fee – £12,000.
Their accountant made another suggestion. They could establish a SSAS for the directors of Tall Building, review amalgamating their existing pension arrangements and buy the property within the SSAS. Following a review of their pension arrangements, the directors had existing funds of £600,000 that could be appropriate to transfer.
The SSAS provider advised the directors that their SSAS could borrow up to 50% of its net asset value to assist with purchasing assets. Based on the transferred funds of £600,000, they would therefore be able to borrow a further £300,000 for the property purchase.
After further consultation with their accountant and the SSAS provider, the directors decided to pay a pension contribution of £150,000 – which was relievable against corporation tax – to ensure that they had sufficient funds to complete the property purchase before their lease expired.
Overall the directors succeeded in purchasing the property and were able to do so largely using existing resources. The cost of arranging this was a fraction of the set up fee for the bank mortgage and they could payoff the mortgage in just 4 years.