Background

XYZ Engineering Ltd is a successful engineering company owned by Will and Jim, who also personally owned its premises and each had a number of old pension schemes. XYZ had recently received an unusually large order and needed to replace some plant.

Challenges

1. XYZ needed to raise funds to finance the delivery of the order and also to acquire additional plant
2. XYZ did not like its bank’s lending terms and requirements for increased security from personal assets
3. Will and Jim were both disenchanted with the poor investment performance of their pension plans and the hassle of keeping track of them
4. Will and Jim were interested in protecting their business premises from their creditors
5. Both Directors were concerned about lack of ongoing pension contributions

What we did

1. Transferred Will and Jim’s pensions into two individually owned and controlled Self-Invested Personal Pensions (SIPPs)
2. Borrowed 50% of value of SIPP funds as a commercial mortgage
3. Used SIPP funds to purchase business premises from themselves
4. XYZ leased business premises from Will and Jim’s SIPPs, paying a commercial rent into their pension pots
5. Used proceeds from sale of property to make directors’ loans to XYZ

The results

• Business received funds to purchase plant and fulfill order
• Pension affairs were simplified
• Control of pensions was gained within SIPPs
• Property became a pension asset, so potentially secure from XYZ’s creditors
• Bank borrowing was restricted to a commercial mortgage with personal covenants
• Will and Jim’s pensions received future funding by way of rent from XYZ
• Realised value of property at a time when capital gains were minimal, minimising Will and Jim’s capital gains tax bills
• No capital gains tax on future growth in value of property