Money Matters - Pensions "Shopping Lists"
What can I buy with my pension? Read on to find out…
Can I buy my house?
Can I own my house with a company and buy the company with my pension?
Can I buy a buy-to-let with my pension?
No – not ever have or will you ever be able to buy residential (someone living in it) property with a pension fund.
This is the most common question I am asked.
There are many reasons why this is unlikely to happen. What you can buy with your pension is commercial property.
SME business owners, who normally have some form of pension, often use this. They can buy the premises the business operates from, with a small mortgage and pay rent from their business to their own pension.
This then means that the rent is tax-deductible on the company, and no tax is paid by the pension on the rent that is received. When you are retired, you can take the rent out via the normal 25% tax-free and 75% taxed method (which has been explained previously, check out my other posts).
You can buy shares in any company, including private equity. You can also lend money to people with your pension and borrow money to invest with your pension.
Any other investable assets except movable property (chattels, art, and cars etc.) can be held within a pension, as long as your contract allows it.
There is one final thing we should probably mention and that is the concept of a connected transaction.
A connected transaction is one where the buyer of an asset has close links with the seller of an asset.
For instance, many people buy their own commercial property with their pension as above, this might be a field; for instance. This is a connected transaction and the only restriction here is that the property must be bought at a market rate and a reasonable level of market rent must be paid on the property. In order to prove this you need an independent market valuation.
The same applies to private equity. You can buy shares in your own private company; however you also would need an independent market valuation by a suitably qualified professional.
If the person selling is ‘at arms-length’ from the buyer then this valuation is not entirely necessary, however if you’re buying an asset then the buyer should get a valuation report anyway for their own purposes.
So that’s it for pensions in this series…
The next five will be all about the mechanics of investing – what can you invest in and how does one get maximum value as well as maximising returns.
Our in house Independent Financial Advisors can help you with all aspects of financial planning including pensions, investments and inheritance tax planning. If you need any legal advice, please contact the Chattertons’ Wealth Management team at your nearest office.