Purchase of business premises

The background

The Engineering company were renting their premises at an annual cost of £49,000 per annum and the lease was due to expire in six months. They were showing profits of £450,000 per annum with healthy cash balances at bank. The directors were keen to reduce their Corporation tax charge. The company year end was 30th September.

What we did

The company elected to contribute £100,000 on 29th March. A second contribution was made on 15th April. The pension input period was changed to 30th April and a third contribution was made on 15th May. This utilized the annual allowances for the two directors for the tax years 2010-2011, 2011-2012 and 2012-2013. The company purchased the new building at a cost of £600,000 which was jointly owned between the pension and the company. The property had a rental value of £60,000 per annum which meant the company needed to pay a rental of £30,000 to the pension.

What we achieved

The company benefited from corporation tax relief of £60,000 because the £300,000 contributions fell within the company year end of 30th September. The ongoing rental income was now paid into their own pension and benefited from £6,000 of corporation tax each year. The company have since made further in specie property contributions for the two Directors and their wives, who work within the business, so that the building is now wholly owned by the pension. This resulted in further corporation tax savings of £60,000 and increased rental paid to their pension of £60,000 per annum and ongoing £12,000 corporation tax savings.

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