Two powerful ways to save tax

We explore tax-saving opportunities that many business owners aren’t aware of.

Do You Want to pay less tax?

Did you know your pension can own your business premises? Read how combining property ownership, pensions and good tax planning can increase your wealth and decrease your tax bill.

Property and Pensions: Two powerful ways to save tax

Tax savings aren’t just about claiming expenses or managing VAT. Some of the most valuable opportunities are hiding in plain sight: property and pensions.

In a previous blog, I explained how the right business structure can reduce your tax bill. Now I’ll explore how combining property ownership, pensions and good tax planning can help you protect and grow your wealth and pay less tax.

Should your business own its property?

Ownership of property can make a big difference to your tax bill. So should you or your business own your premises?

Holding property inside your trading business is risky. If the business gets into financial difficulty, creditors can demand your property as payment.

It’s therefore better to keep property ownership separate. Another reason is that if you own the property yourself, when you sell the property, you’ll pay capital gains tax rather than the higher rate of corporation tax.

What’s more, if you own the property through a Self-Invested Personal Pension (SIPP), you may not even have to pay capital gains tax. I’ll go into this in more detail below.

If your business rents the property, you may be able to claim tax relief on the rent and keep the property even if you sell the business.

You may also be eligible for business rates relief which many businesses don’t realise they can claim or claim incorrectly.

Using a Property Holding Company

Creating a separate limited company to hold your business property is a common and effective strategy. This protects the property as it’s out of reach of creditors. It also saves tax as your main business pays rent, reducing its taxable profits.

And if you’re looking to exit the business, you can sell the business but keep the property, continuing to earn rent.

However, there are some things to watch out for. The property won’t qualify for Business Asset Disposal Relief so more tax may be due if you sell the property. You may also be liable to Stamp Duty Land Tax when transferring property to a holding company. Then there’s the possibility of tax on withdrawals if you take money out of the property company personally for dividends or salary.

Still, for many businesses, the pros outweigh the cons, but care should be taken to make sure it’s structured properly.

Buying property with your pension

Yes, your pension can own your business premises! In fact, it’s one of the most tax-efficient ways to do so, using either a Self-Invested Personal Pension (SIPP) or Small Self-Administered Scheme (SSAS).

Your business can then pay rent into your pension, tax free. And if you sell the property, you won’t pay any capital gains tax (CGT). This method also ringfences the property from any trading issues or creditors.

This approach not only saves tax but also grows your pension pot – a win-win!

Extracting profits through pension contributions

Pension contributions are often overlooked but they’re one of the most tax-efficient ways to extract money out of your business.

Your company can contribute up to £60,000 a year tax-free and these contributions also mean you’ll pay less corporation tax.

The real power: Combining strategies

Now let’s take this up a level and put all of these methods together:

• Buy your premises through a SIPP/SSAS – Receive tax-free, increase your pension tax-free, CGT exempt.
• Use pension contributions to reduce corporation tax – Move profits into your pension tax free in lieu of taxable salary or dividends.
• Keep property out of your trading business – To protect it from financial risk.
• Structure ownership properly – Whether personally, via a pension or property company affects your tax.

Many business owners miss out on these tax-saving strategies simply because they’re not aware of them. But with the right guidance, you can save thousands now as well as building wealth for future retirement or exit plans.

Our next blog will focus on exit planning, detailing how having an exit strategy in place protects your financial future.

If you’d like to avoid other common financial pitfalls and keep more of your hard-earned cash, download our free guide:

Our next blog will focus on exit planning, detailing how having an exit strategy in place protects your financial future.

To find out how we can help your business, please get in touch on 01603 812131 or email enquire@swintonaccountants.co.uk