Are you starting your own Practice?
When you set out to open your own business, or if you are already running your own practice, one consideration is where and how you will operate your business. The high cost of rent, especially on UK high streets can make buying your own premises an intelligent business move. Owning your own premises gives you greater control over running your own practice, plus the security that the landlord can’t ask you to vacate the premises or increase the rent to a level that may become unaffordable.
Owning your business premises also means you are buying an asset that can be sold in the future, or when you come to sell the goodwill of your business, you can become the landlord and receive rent from a new tenant.
Buying commercial property
Buying commercial property is different from buying your home. Lenders tend to take a more individual approach to how much they will lend to you based not only on what the building is worth, but also on your business plan and profitability of your business.
There are options on how you buy a commercial premises, whether you buy it in your name, or through your pension.
Buying in your own name
You can buy your premises in your own name, with the advantage being you don’t have to charge yourself rent. Commercial lenders will want to see a commitment from you but unlike residential mortgages this will vary depending on your circumstances and the risk the lender sees. Commercial lenders will look for a deposit of anywhere between 15% – 40% of the value of the property, which means you need to have saved the capital ahead of the planned purchase.
You can approach your own bank, or our preferred route is to use a commercial lending broker who understands the market and optometry, and can help you submit your application to the most appropriate lender. “Packaging your application” means giving all the information to the lender in a way they can understand, and providing them with as much information as possible, including the proposed property, your track record, your personal financial position and your business plan.
The reasoning behind this is commercial lenders price their lending on the perceived risk to them; therefore, the more you can tell them how great your plan is and why it’s going to work, the better the interest rate you is likely to be.
When it comes to finding finance, we’ve teamed up with independent finance specialists Rangewell who have access to thousands of different finance products and over 300 business finance lenders. They’re experts in finding loans for people like you, and offer fee-free expert advice which can put you on track to finding a commercial loan that suits you.
Buying via your pension
An option which is sometimes overlooked is using your personal pension to help buy your commercial premises. The first point to bear in mind is you need to have funds in your pension in the first place. So if you are thinking you might like to buy a practice in the future, you may want to start taking action now and pay more into your pension than you might have in the past.
Why would you want to use your pension?
Firstly, for many people, their pension is their largest savings pot, but you can’t access that money until you are over the age of 55. You can however deploy the money in your pension as an investment, for example, a commercial premises.
Buying a commercial property through your pension is complex, and financial advice is essential, but the rewards can be significant. Firstly, let’s consider a scenario: your pension is worth £300,000 and you have found the ideal premises for your new practice on sale for £250,000. Your pension could buy the premises for you, and you would have no loan pay back.
The main thing to bear in mind is that your pension now owns the premises, not you. You have to pay market rent into your pension, so you may be wondering why would you buy through your pension if you still have to pay rent?
The rent gets paid into your pension and the rent is treated by HMRC as growth and not a pension contribution, meaning you can still pay into your pension if you wish to. Growth (i.e. the rent) is free of any tax within a pension; therefore your rent has no tax liability on it.
Benefits of buying through your pension
Pensions benefit from tax-free investment growth, therefore if you buy a property today for £250,000 and sell it in 20 years’ time for £500,000, you have no tax liability within the pension.
On the same basis, how do you get your pension to a value that will give you the life you want in retirement? Taking the example above, if you rent your premises from your pension, paying £1,000 per month and renting for 20 years, you will pay £240,000 into your pension. In addition, the value of the premises at £500,000 means your pension pot could be worth £740,000 without any additional pension contributions or investing the residual money.
There are numerous benefits and pitfalls to buying a property through a pension, so it’s essential you understand them before you consider and follow through on this option. We have a thorough knowledge of the different ways you can buy a commercial property; whether it is in your name, through a Limited company, or via your pension. If you would like help and advice, please contact us.
Lloyd & Whyte (Financial Services) Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 02092560. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain.
