Tax Saving Through Pension Planning
What was the problem?
Our client, a manufacturer in Greater Manchester, trading as a limited company, owned their own business premises. The loan that was originally taken out to purchase the property had been repaid in full, so the company was mortgage free.
On the face of it, there was not a problem, but Sherlock & Co, knew that the client wanted to explore every opportunity to save tax as had been the case in previous years.
Sherlock & Co identified and discussed with the client a potentially very significant tax planning opportunity.
What was the solution?
Having good knowledge of the individuals who owned and ran the business, Sherlock & Co were well placed to make the suggestion that the company sell the business premises to the Directors’ Pension Plans.
After discussing our suggestion with the Independent Financial Advisers and our client, SIPP’s (Self Invested Pension Plans) were set up and existing pensions were transferred in. Over a number of years, extra pension contributions were made via the company such that the overall pensions funds were eventually able to purchase the company property.
The company now rents the same property at an annual rental charge of £24,000.
What was the result?
The company now gets Corporation Tax relief on the rents paid to the Directors’ pensions. At a rate of 19%; this equates to a total tax saving of £4,560 per annum.
The Directors’ pension funds receive £4,560 of cash in total each year which is tax free income. This cash is used to invest in other assets, such as stocks and shares, which generates additional tax-free income, ready for when the Directors eventually retire.
Any increase in the capital value of the property will not be subject to Capital Gains Tax as it would have been had it have been left in the company.
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