If you’re tired of constantly spending money on rent, you may wish to consider investing in commercial property. Whether you run your business from a warehouse, a shop, or another building, purchasing the property instead of renting it comes with great financial benefits.
You won’t be spending so much money on rent
As you’re effectively paying someone else’s bills and mortgage on a property when you rent, it can often feel like a colossal waste of money. But when you’re renting a space for business, you need the space to secure your income. This can feel like a catch-22 situation.
However, if you look into investing in property through your pension, you may be surprised at the benefits this can offer you.
Property is owned by your pension
If you choose to invest in the property you’re renting, you can do so as part of your pension. For instance, commercial property can be held as a direct investment through a Small Self Administered Scheme (SSAS).
So, you could effectively use your pension fund as a business owner to purchase the commercial property your business operates out of. Money you spend on rent is added into the pension, rather than going to a third party.
This also gives you access to utilise the funds before your retirement!
You can begin to build a property portfolio
By using your pension pot to purchase a property, you could start to build your own property portfolio. Once you’ve set up a SSAS pension fund, providing you choose to invest in commercial property (you cannot invest directly in residential property with a SSAS pension), you could add family members to the pension fund, and each would own a percentage of a property through your collective pension pots.
This option may enable you to build a commercial property portfolio by investing in other buildings too, rather than purely investing in your own business premises. Purchasing property through your pension is a very tax-efficient way of building a portfolio.
Additional money to add into your pension
If you invest in property with your pension, additional money from rent will be added to your pension pot, which will help increase its value. Rent paid for the premises is also classed as a business expense, which means it’s tax-deductible. This is another benefit of using your SSAS pension to invest in commercial property.
It’s also possible for you to borrow up to half the value of the pension fund before purchasing, which serves as a mortgage to buy the property through your pension, if needed. If a loan has been given to help with the cost of purchasing the property to begin with, then the loan repayments are usually made from the rent received.
You can also claim back your mortgage interest, which is a further tax benefit.
Property is likely to increase in value
As property is widely regarded as a strong investment, you should see it appreciate in value, particularly over the long term. This in turn will increase the value of your pension, as the pension pot effectively owns the property.
If you decide to keep hold of the property, it could later be used to provide a retirement income via a pension drawdown option. This can help to ensure that you and your family are well looked-after further down the line.
Thinking of investing in commercial property through your pension? Make sure you ask for advice from a financial planner. Get in touch with the Trinity team today to speak to a friendly and experienced accountant.
