Pension schemes could offer a solution to UK businesses struggling with cash flow difficulties resulting from the coronavirus pandemic, according to research from Old Mill.

The financial expert suggested firms that own a commercial property could sell it to their pension scheme in order to provide a cash injection.

Businesses can purchase a commercial property either with a self-invested personal pension (SIPP) or a small self-administered scheme (SSAS), and Old Mill indicated the pension can either buy the property outright, or if there are insufficient funds in the pension, that it’s possible for the pension to take out a mortgage to facilitate the purchase.

The pension scheme would then let the property back to the business, Old Mill senior pensions manager, Steve Woodham, explained.

“The rent will then help pay off the mortgage, or if the pension scheme bought the property outright, will just be further cash and growth to the pension fund,” he said.

“And because it’s a pension, and therefore tax-efficient, the rent paid into the fund is not subject to tax, and it will pay no tax on any increase in the value of the property either. But, if you are renting the property back to your own business, the rent is still a tax-deductible expense.”

Woodham also highlighted that even if the price of a property that a firm wants to buy is higher than the value of the pension, it might still be possible to purchase it with the pension.

He continued: “While we are looking at businesses buying their own premises here because it’s a way of relieving cash flow issues, SIPPs and SSAS can buy any commercial property, it doesn’t have to belong to your own business, and then whichever business then uses it would pay rent into the pension.

“If the only asset in your pension is a property, and you are near retirement, it will be difficult to create liquidity to pay out an income or the tax-free lump sum, so it’s generally advisable to have a diversified portfolio. If you are considering buying a commercial property with your pension, you should seek financial advice.”

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