Get a gripwith a SIPP howto improve your income with a Self Invested Personal Pension
James Wright , independent financial adviser, takes a look at ways for landowners and rural business owners can use a Self Invested Personal Pension (SIPP) to maximise their future income.
Y ou may have taken care of your employees’ pension arrangement through auto enrolment, but as a rural business owner, are you confident that you have maximised your opportunities for your own personal pension and income in retirement? With so many agricultural businesses finding the current economic climate difficult, there are more compelling reasons than ever to take advice from an independent financial adviser in order to plan for your future. One tax-efficient form of investment is a SIPP: a Self Invested Personal Pension. A SIPP is a pension ‘wrapper’ that allows you to hold investments in a tax efficient way. For farmers and landowners this might mean that you can own commercial land and property within it, and receive rental income from the business. Furthermore if contributions are made as an individual, tax relief on these will receive an uplift in value from the basic rate of tax relief (20%) within the pension, and higher or additional rate relief could be available via a tax return. Within a SIPP it is possible to borrow up to 50% of the assets held. This could be via a loan from a bank who would register the asset as security against the loan. Contributions to pensions are capped at the lower of relevant earnings (salary or profit if a sole trader) or the annual allowance of £40,000 per annum. If you haven’t contributed to pensions for a number of years you may be able to carry-forward the previous three years’ allowance, so you could contribute up to £170,000 gross (£136,000 net of basic rate relief). Taking a practical example of an initial contribution of say £120,000, this would receive basic rate relief increasing the value to £150,000 within the SIPP. The SIPP can then borrow another £75,000 against the asset, giving a total of £225,000 available to purchase farm buildings, land or property. A pension contribution of £120,000 will also provide further tax relief via a tax return reducing the cost of this contribution. A further advantage follows if the SIPP is being used to own
agricultural land which has the prospect of being developed. Whilst residential property can’t be owned within a SIPP, approval to convert agricultural land or a commercial building to be developed for residential can be obtained whilst held in a SIPP. Capital Gains Tax (CGT) would ordinarily be due when selling the land or property after this approval has been obtained, but within a SIPP it could be shielded as pensions are CGT free. Bear in mind that no residential property can be owned within the pension, so you would need to sell out the asset before it is developed. If land or a commercial property is held within a SIPP, a commercial rate of rent will need to be paid to the SIPP. Also remember that any loans taken out are subject to interest. If you have an income above £150,000 you should take further tax advice as the recent budget introduced a change on the pension annual allowance for high earners. Should you not wish to invest in land or buildings, a pension can be used as a diversifier away from agriculture, and your financial adviser can suggest a portfolio of investments, based on your attitude to risk. We are often asked to review our clients’ ability to make pension contributions and provide advice for an appropriate pension in order to invest in land, commercial property or an investment portfolio. Our team of advisers at Scrutton Bland Ltd can revisit your existing pension schemes to ensure that no unnecessary costs are being incurred and advise you on whether these could be amalgamated in order to achieve your retirement objectives. If you would like to talk through ways to maximise your pension or investments please contact James Wright on 01473 267000 or email james.wright@scruttonbland.co.uk Scrutton Bland Ltd is authorised and regulated by the Financial Conduct Authority.
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