Making your pension fund 'work' for you.
For many, pensions are one of those things that we put on the 'too difficult shelf'' and save a few pounds and then forget all about them.
On our website we have written many times about charges, poor performance, the lack of control and more. However, what many of us do not know is there are things that your pension fund could be doing to put you in complete control.
A pension fund can do the following:
Self Investment is NOT new
No, these are not new rules; these are rules that have been around for years.
Using a pension fund to buy property rather than just leaving it with an insurance company or bank is known as "self investment".
Your Pension: A Business Tool
Our director, Ashley Clark, cited a recent lady client who had left employment to start a family and whilst she did not wish to return to work, she wanted to remain active and start her own small business with hours to suit her. Money was tight having a newborn baby so she saw no way of doing this. She had been in a company pension scheme for years and had already built up a sizeable pension fund of over £100,000 before she left. This, she did not know, was the key to starting her own business. By transferring her frozen pension to a 'Self Invested Personal Pension', she was able to use her pension fund to buy a small shop front unit outright and start her own business. She may at a later daye even buy larger premises if the business develops and could secure a pension mortgage i.e. the pension fund borrows commercially with up to 50% of the value of the pension fund can be borrowed.
Paying Rent To 'Yourself'
Instead of paying commercial rent to a landlord and the money 'going down the drain', she is now paying rent to herself. Her pension fund had become her landlord and the pension fund was growing again as it was receiving income from rent as well as the growth in the value of the property. As a bonus, she is able to claim the rent paid to her pension fund as a business expense and offset it against her tax bill as well as owning a property that she will not pay any inheritance tax or capital gains tax on.
No Capital Gains Tax
Many people may not be aware that when you own a second property you are liable to pay capital gains tax when you sell it. Pension funds do not pay these taxes.
No Income Taxes on Rent
Your pension fund is not liable to income tax on the rental profit it receives.
Types of Scheme
There are many different types of self invested pensions that are available for either private people, working or not, such as 'Self Invested Personal Pensions' and 'Private Managed Funds' or for a limited company there are also 'Small Self Administered Schemes'. They all have the power to invest in shares of your choice. They can all buy commercial property. They can take a mortgage out in the name of your pension fund that you are not personally liable for and most can even open a bank account if you prefer your pension money to be in a low risk deposit fund at your high street bank. Even if you just think that you could do a better job at getting higher returns than your current pensions company then the self invested route may be worth considering.