Property Investment: Limited Company vs SSAS Pension
We thought it would be useful to have a look at commercial property purchase, comparing buying it in your Limited Company to buying it in your SSAS.
Let’s take a look at the figures.
Company Property Purchase
Property Price: £300,000
Deposit: £120,000
- The Company borrows £180,000 from the bank at 8% interest for 15 years
- That leaves them with a loan cost of £1,720 per month.
- Over 15 years, the Company pays back £180,000 of capital and £129,631 of interest.
As many people will know, the interest on a loan taken out by a Company is tax deductible. So, the Company does receive tax relief on the loan interest.
For ease of numbers, let’s say the Company pays corporation tax at a rate of 25%, so with the corporation tax relief, the Company saves £32,407 on interest.
What you have to take into account is that the capital repaid is paid out of gross income. So, the Company has to earn more profit to pay the capital back.
Company Property Purchase: The Result
Here’s what the final figures look like broken down:
Interest Paid: £129,631
Tax Savings: £32,407
Capital Repaid: £180,000
Tax Cost: £60,000
Tax Loss Over 15 Years: £27,593
Final Property Total: £337,224
Purchasing the Property Through SSAS
Property Price: £300,000
Deposit: £120,000
Pension Value: £100,000
For the sake of this example, we’re going to keep the figures the same. The only difference is that we’re going to assume the Directors of the Company have amassed £100,000 in pension value.
- The Company uses the £120,000 deposit as a contribution to the SSAS
- Corporation tax saving of £30,000
- The Company borrow £80,000 from the bank (8% loan over 15 years)
- That’s £764 in monthly repayments going into the SSAS
- The Company becomes the tenant and pays £24,000 (equivalent to an 8% yield on the value of the property) into the SSAS every year
- The rent is a tax deductible expense
- Over 15 years, the Company has paid £360,000 of rent into the SSAS and saved over £90,000 in corporation tax
All the Company has done is pay the rent. There are no contributions being made and yet they’ve paid the debt.
Discover more benefits of commercial property purchase inside SSAS.
Find Out More About Commercial Property Purchase Inside SSAS
Which option would you choose? Do you want an asset on the balance sheet at £300,000 (having cost you a substantial amount in tax and interest) or would you want to buy it into the pension where you end up with a hugely positive figure of £522,387 and £120,000 in tax savings? It’s a no-brainer.
Whether you’re looking to purchase commercial property inside SSAS or move your residential portfolio to commercial, SSAS is the solution.
If you’d like to find out more about purchasing commercial property inside SSAS, visit our SSAS Video Hub or book a call. We’d love to hear from you.
