08.12.2020 | tax

How to make tax rules work for your business


John Oakley explains how firms can make tax rules work best for them.


With the economic upheaval caused by the coronavirus pandemic, companies will be looking at ways to make the best use of their cash and assets.

The pandemic has put pressure on cash, but when a company has other assets there are opportunities to use the tax system to your advantage.

Imagine a company owns a building with a mortgage, and the business owner has a sizeable pension fund.

The pension fund could potentially be used to purchase the property leaving the company debt-free and with some cash to help it meet any immediate needs. If the pension fund does not have sufficient funds, there may be options through borrowings or additional contributions to the fund by the company could enable this.

In the pension fund, any increase in the value of the property will be capital gains free. On top of that, rental payments can then be made from the company to the pension fund, again obtaining tax relief to fund the repayment of pension fund borrowings or enable its growth.

As well as freeing up cash, this route would provide longer-term protection from the potential increased capital gains tax rates on the sale of the company.

It can also make a purchase of the company more affordable for a potential buyer as there is no burden of a large property value.

The firm must be mindful of is capital gains arising on the property when it transfers it to the pension fund and any stamp duty charges that may also be added. But these potential charges are often minimal in terms of the financial gains possible.

Knowing how to make the tax system work for your business is more important now than ever. After all, the last year has been extremely challenging for even the most robust of businesses and futureproofing is important.

Please note, this does not constitute investment advice, and we recommend you seek professional advice before making any decisions.

If your business needs help managing its finances visit beatons.co.uk