Entrepreneurs are encouraged to speculate to accumulate and take on some of society's burden for job creation and economic growth. However, in today’s testing climate, small businesses need reliable cash flow to survive and they need injections of investment capital to expand. Whilst it seems there is a willingness amongst small firms to embrace this opportunity, the task can be made significantly more difficult to achieve without dependable and readily available sources of lending.

I am sure we would all agree that banks should not revert to their laissez-faire days of easy money, but even sensible lending to well run companies with proven track records is almost impossible to find. These days, requests for investment by banks involve interminable conversations which may ultimately still lead to nothing.

So how can business owners find sources of capital investment? Surprisingly, pension schemes may offer a solution that is not immediately obvious.

Traditionally we think of pensions as being associated with the saving of money which is then locked away until retirement. However, in the right circumstances, they can be used to release capital of up to £200,000 in the current tax year.

For example, if you own your commercial premises, it might be possible for your pension scheme to buy your premises from you, thereby releasing the cash proceeds to you to use as you see fit. Of course this does require your pension fund to have sufficient value to make a purchase, but you don't have to buy all the property in one go, you could buy it in stages to meet your needs and circumstances.

Alternatively, your objective might be to significantly reduce your tax liability. By contributing part of all of your business premises to your pension fund instead of cash, you can claim tax relief for the contributions you have made. The level of contribution you can make will be dictated by current legislation, but it is feasible to make a contribution of up to £200,000 for the 2011/2012 tax year depending upon your circumstances. You don't need to write out a cheque as your property contribution will effectively be the cheque and entitles you to tax relief on the contribution from HMRC at your highest rate of income tax. If your contribution levels are more constrained, why not spread the contribution over more than one tax year. Pension schemes do not have to own the whole property, in fact many schemes exist whereby the pension scheme and individual or employer both own portions of the same property. Property purchase can be as flexible as you like, as long as the property in question is regarded as an allowable asset in line with current legislation.

It is also possible for a pension scheme to borrow up to the value of 50% of net scheme assets, so if a pension fund was valued at £200,000, the scheme could borrow an additional £100,000 to aid the purchase.

Releasing capital and benefiting from tax relief are just two considerations, here are some other benefits;

If you own your commercial property in your own name, it is likely to be subject to capital gains tax should you decide to sell it in the future. If instead you instruct your pension scheme to buy your property, the capital gain would be crystallised at completion, but thereafter no capital gains tax would apply once the property is held within the pension fund. This transaction does not avoid capital gains in the short term, but if you consider today's depressed property valuations, it may be an advantageous time to sell your property to the pension scheme when potential gains are likely to be much lower than maybe 3 years ago. If you also believe that property values will rise over the long term, such growth will be free from capital gains tax.

Additionally, rental income would be received into the pension scheme tax-free and many costs such as legal fees and disbursements can be covered by the pension scheme as well, thus aiding

Tags: Small businesses, pensions, capital investment, tax relief

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