Buying commercial property through a pension fund – a case study

Following on from his blog last week about the benefits of purchasing commercial property through a pension fund, John O’Hare, Managing Director at Cameron Chase, has provided a real life case study of a client who has recently purchased an industrial unit with the help of a Small Self-Administered Scheme (SSAS) set up by Cameron Chase (the names have been changed to protect client confidentiality).


Alex, Robert and Jane are the three directors and shareholders of ARJ Ltd.  Business has been good over the last year and their accountant informs them to expect a profit before tax of around £150,000. They have the opportunity of purchasing their small industrial property from their current landlord to whom they currently pay £25,000 per year rent. The property is subject to VAT and the landlord is hoping for a quick sale as he is experiencing financial difficulties.

Alex, Robert and Jane are all in their late fifties and are concerned that their focus has been on building up the business rather than on providing themselves with an adequate pension for when they wish to cease working. Their existing pension transfer values are £35,000, £25,000 and £40,000 respectively, which they know will not allow them to enjoy the lifestyle they desire in retirement.


ARJ Ltd establishes a Small Self-Adminstered Scheme (SSAS) for its three Directors into which they each elect to transfer their existing pensions. The company makes a gross employer contribution of £120,000 split equally between Alex, Robert and Jane, which the company accountant is content meets all relevant HMRC restrictions. This contribution of £120,000 reduces the ARJ Ltd corporation tax bill by £24,000. The SSAS bank account now contains £220,000 in cash (and is allocated 34%, 30% and 36% respectively between the three Directors based on the amount they’ve put in to the scheme).

The Directors speak to their bank manager who agrees to advance a loan to assist with the purchase. The SSAS is permitted to borrow a maximum of 50% of the net fund value, which in this case equates to £110,000. The loan will be over ten years on a capital and interest basis and will be secured on the property with a first legal charge.  The purchase including VAT totals £300,000, which the SSAS pays, with adequate funds remaining to meet associated costs and charges.

The SSAS has been registered for VAT so the SSAS trustees arrange for the £50,000 of VAT to be reclaimed (it may also have been possible to transact the deal as a ‘transfer of a going concern’), which is then used to pay down a large portion of the loan. ARJ Ltd agrees to a lease paying what the surveyor advises is prevailing market rent of £20,000 (plus VAT) to the SSAS. The SSAS uses this rent to service the loan.


Alex, Robert and Jane now feel they have a pension scheme which is in their control and is actively assisting with their business.  As Company Directors they like to be in control of their and their company’s affairs – the SSAS gives them that ability with greater investment flexibility and more options open to them in terms of how they draw their benefits from the scheme when they retire.  As trade continues successfully the company will make significant contributions for the Directors, reducing the corporation tax bill and enhancing the Directors’ retirement plans.

Robert wants to reduce the hours he is working in the business and accordingly will reduce his salary.  In order to make up this reduction in his income he can elect to take regular Tax Free Cash (Pension Commencement Lump Sum) from his portion of the SSAS.  He does not need to stop working for the business, resign his Directorship or sell his shares to do this.  He can also elect to draw a small portion of his pension entitlement.  When the Company has a particularly successful trading year and the Directors decide to pay large dividends Robert can cease his regular Tax Free Cash withdrawals (saving them for later) and stop his pension drawdown payments which he can then restart as and when he requires the funds.


If you have a property on your company balance sheet or are considering purchasing commercial property feel free to contact us to discuss the tax benefits of buying it through a pension scheme. Get in touch with us here.

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