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Invest Unlimited Lump Sums from your Pension

Invest Unlimited Lump Sums from your Pension

10th March 2015

Next month, new pension freedoms take effect and will give all those over 55 years old access to their retirement savings to spend as they wish. These new freedoms are causing millions of people to reassess their saving and investment strategies and rethink their pension planning completely.

Although savers will now be able to withdraw unlimited lump sums from their pensions, there will of course be tax implications to consider. Everyone is entitled to a 25% tax free lump sum but after this, the money would be taxed as income so any large sums would push the recipient into higher tax brackets for that year. Investing the money into a business or commercial property are possible routes around this obstacle.

Investing in a Business

From April 2015, over 55s will be allowed to inject their businesses with unlimited cash lump sums from their pension funds. This can be hugely tax-efficient because business expenses can be offset against the future profits of the business in order to cut tax .

Plus, to really make the best use of the new pension system, savers can use profits from the investment to top up their pension, benefiting again from tax relief on the contributions.

Business expenses, as defined by HMRC which are “wholly and necessarily for the purpose of the business”, can be deducted from business turnover which therefore reduces the profit on which tax is payable. Please note: different rules apply depending on whether your business is a limited company or a partnership; it’s best to seek professional advice from your account or financial advisor.

Investing in Commercial Property

Another option is to buy a commercial building through a self-invested personal pension (Sipp). The commercial building could be for your own business or as an investment in itself for non-business owners. This option allows you to pay commercial “rent” into your Sipp fund, which can equal further tax relief. You can borrow up to 50pc of the value of your Sipp to help buy the property. With residential property the rules are tighter. To be held in a Sipp it must be connected to a commercial property owned by your pension.

Funding a Start Up

Experts are predicting a surge in new business start-ups due the new pension freedoms. It could certainly be a shrewd investment if you know what you are doing but can also be risky for those without the necessary experience in their chosen field or any prior knowledge of running a business.

Although savers will now be able to withdraw unlimited lump sums from their pensions, there will of course be tax implications to consider. Everyone is entitled to a 25% tax free lump sum but after this, the money would be taxed as income.

If you need any advice about investing money from your pension fund into a commercial property, contact Sibley Pares, Kent’s leading commercial property agent. Email property@sibleypares.co.uk or call 01622 673086.