For use by professional advisers and for information purposes only
Three opticians own a business with two practice premises. John, the senior partner, is planning to retire after a recent bout of ill health. Clare and Paul, the other partners, would like to increase their share in the partnership.
Clare and Paul recognise that they will need to bring in a third Optician to work across the partnership’s high street and shopping centre locations.
John is keen to begin backing out of the partnership and sees solving the premises ownership issue as a first step towards retirement.
Their two practice premises are currently valued at £350,000 – on which there is borrowing of £150,000.
Senior partner John has a 50% share in the property, Clare has 30% and Paul has 20%
Clare and Paul want to have control between them but recognise they have to offer a stake to attract a good-quality optician. They decide to offer the new partner a 20% stake in the premises and restructure the partnership to keep 40% each.
Clare and Paul transfer their existing pensions to two new SIPPs.
Clare has accumulated significant pension saving throughout the years, and has sufficient funds to allow her SIPP to purchase both her existing 30% stake as well as the additional 10% for a total sum of £140,000.
Paul has only £75,000 in his existing pension. However, he has the ability to make a lump-sum contribution. He makes a £32,000 contribution into his SIPP and @sipp claim his 20% basic rate tax relief, taking the fund to the £115,000. Paul then uses his SIPP to purchase a 30% stake (-10% from him, to pay off his share of the mortgage, as well as the additional 20%) for a total sum of £105,000.
A new junior partner is offered a 20% share of the business premises for £70,000. They can purchase this in cash or via a SIPP, depending on their personal circumstances.
John now has £100,000 in cash released from the premises, with the mortgage paid off, and negotiations can begin on buying his share of the partnership.
The premises are leased back to the opticians’ business at the market rental value (£28,200 pa) for a 15-year term, subject to rent reviews every five years.
They can reclaim higher and additional rate tax relief through self-assessment, where contributions have been made to fund a SIPP property purchase.
The premises now held in the SIPP fund will attract no Capital Gains Tax if they are sold.
The rent now accumulates in the SIPP fund, free of income tax, and is available for investment.
The rental income does not impact on their annual contribution limit, so they are also free to make contributions each year up to the annual allowance.