Publicans urged to use pensions on commercial property

Publicans and would-be licensees are being urged to look to pension funds as a means of financing their entry into the pub trade.

While many publicans consider a bank loan, a brewery loan or using a financial broker to provide them with access to funds, one leading financial advisor believes not enough licensees are looking at their pension funds.

Ian Ody, a senior financial advisor with commercial property specialist CTFS, told The Publican licensees should think of a new way of "spending their pension in a pub".

"For many years, it has been possible to purchase a commercial property via your pension fund," he said. "The major drawback, originally, was that few people had enough money in their fund to afford it. More recently the ability to borrow has been introduced, with certain types of pension able to borrow up to 75 per cent of the value of the property."

In effect, said Mr Ody, using a pension fund to finance a commercial property meant the purchaser could buy a premises without using the cash in his bank account, lease it back to himself and offset the rental cost against profits.

In addition they wouldn't have to worry about any capital gains tax charge on the sale of the building, and would establish a tax efficient cash sum, all at the same time.

"The fund buys the property either outright or with the help of a brewery or bank," said Mr Ody. "You then enter into a lease agreement with the pension fund and pay a fair market rent for the use of the property. As with any rent, the cost is offset against your taxable profits."

The pension fund assets do not attract capital gains tax, nor income tax on the rental income. Part of the rent is used to repay any borrowings and the balance is held in cash or invested.

"When you come to retire, the pension fund sells the property," Mr Ody concluded. "The cash generated from the sale is then used to provide you with income for retirement and a tax-free lump sum of cash."

Couldn't be simpler...could it?

But beware the pitfalls​

Little in life comes without a catch and Mr Ody warns licensees to be wary of the potential pitfalls that come with buying a property with a pension fund:

• Once the money and assets are in the fund you cannot take them out unless you want pension income
• Pension income in retirement is taxable
• Providers of the pension scheme make charges for this type of arrangement - although these are more than offset by the tax benefits.