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Case Studies
Case Study 1 - SIPP Property Purchase
A two director limited company owning the premises from which it was trading came to us with a view to some planning which would increase cash flow for future years whilst also reducing corporation tax in the previous year.
We set up SIPPs for each of the directors with a company contribution of £100,000 each. The company had made a taxable profit of £495,000 and by virtue of the £200,000 SIPP contributions profit reduced to below £300,000 meaning that the corporation tax rate reduced from 32.5% to 20%.
The SIPP plans then borrowed £50,000 each from RBS and bought the business premises from the company for £275,000. Going forward the company now pays rent to the directors own pension plans at £11,000 per annum per director which should pay off the loans over 7 years.
The main advantages of this exercise from a planning perspective were :
Case Study 1 - SIPP Property Purchase
A two director limited company owning the premises from which it was trading came to us with a view to some planning which would increase cash flow for future years whilst also reducing corporation tax in the previous year.
We set up SIPPs for each of the directors with a company contribution of £100,000 each. The company had made a taxable profit of £495,000 and by virtue of the £200,000 SIPP contributions profit reduced to below £300,000 meaning that the corporation tax rate reduced from 32.5% to 20%.
The SIPP plans then borrowed £50,000 each from RBS and bought the business premises from the company for £275,000. Going forward the company now pays rent to the directors own pension plans at £11,000 per annum per director which should pay off the loans over 7 years.
The main advantages of this exercise from a planning perspective were :
- The company saved £64,375 in corporation tax
- £275,000 was generated for the business as positive cashflow to see them through a possible recession (minimal capital gains was due on the property due to indexation etc.)
- The directors were excited at the prospect of moving the property into their own pension funds as a retirement tool
- Each director will obtain a significant SIPP fund at retirement due to ongoing rental streams, capital gains etc. which are all free of tax
- Each SIPP was written under trust so that the value of the property was outside of the directors estate for inheritance tax purposes