Pension backed Mortgages
- The clients’ company bought their commercial premises 9 years ago for £295,000 and the client took out a pension scheme, linked to the interest only mortgage;
- the interest payments due on the mortgage were and are serviced by rental income;
- 9 years in and the pension is looking on track to provide a large enough Tax Free Cash lump Sum to pay off the capital element at retirement;
- they still have 6 years to go before they can retire and draw their Tax Free Cash.
Facing some hefty tax penalties they could not have foreseen, they were looking to see if their pension funds could yet save the day.
Not so long ago Pension Backed Mortgages were all the rage (along with Endowment backed ones – but that’s another story) and the idea was solid enough. Invest in a pension scheme and trust in the Tax Free Cash element being sufficient to pay off the capital element of your loan at retirement. What could go wrong?
One of our clients found themselves at the wrong end of change in legislation which nearly left their carefully laid plans in tatters.
- Thanks to sound investment advice and good contributions, the last statement they received showed that the tax free cash likely to be available at retirement is somewhere in the region of £350,000;
- thanks to a change in legislation, this amount is now too high to be paid out without tax falling due, meaning that it won’t all be Tax Free and there was little point in using a pension scheme as a vehicle to pay off the capital.
By maintaining a close partnership with the client’s trusted Advisers, we worked to put the client in a position where they’d lost none of the control they’d had of their property. We also put them in stronger financial position, not just in terms of cash in the bank, but also strengthening their position with their bank for future transactions whilst not having to worry about their mortgage, or their Tax Free Cash.
- we moved the property into a tax efficient environment;
- we cleared the client’s mortgage;
- we reduced the company’s monthly outgoings;
- we reduced the company’s tax bill;
- we consolidated the Directors’ pension funds;
- we provided the company with the potential to borrow without going to a bank;
- we ensured that the client’s pension fund was protected from any tax liability.
The magic bit
As usual, we aren’t about to go giving our trade secrets away when many a sleepless night has been endured to bring them into being. Also as usual; there are plenty of additional benefits of this process that we’d sooner divulge at a meeting if you really wanted to know more, or felt this situation echoed the situation you or some of your clients find themselves in.
Get in touch with the Pension Solutions Group.
“It has been important to me and Jean to have things set out in plain understandable terms, this you have always done for us. We consider the way you are handling things for us to be first class and we look forward to your further help in the future.”
Modular Scaffolding and Building Equipment Limited
PSG SSAS (ROI)
Being up-to-speed with the legislative differences between the British and Irish jurisdictions means we offer unrivalled product spec and service on both sides of the Irish Sea. Different legislation, same razor precision.View product