This article was first published in the September 2016 UK edition of Accounting and Business magazine.

When clients turn to accountants for financial advice, they might assume their advisers have their own financial futures all sewn up. In fact, this is far from the case. A recent survey by Bower Private Clients found that a fifth of accountants have no retirement savings at all. This never used to be the case, but when Equitable Life collapsed in 2000, accountants were among the main victims, alongside lawyers and other professionals. Low returns from equity investments added to the cynicism about traditional pensions. Finally, many accountants in practice simply don’t have the spare cash for pension contributions.

Many accountants have avoided traditional pension savings altogether, with a third planning to fund some or all of their retirement using property wealth, either from buy-to-let investments or the sale of their own homes. But since the last Budget, the tax system has shifted drastically against landlords, and with storm clouds hovering over house prices, a rethink of buy-to-let strategies may be in order.

There is, in fact, a happy medium that brings together investment in property with the tax advantages of pensions – and that is for the partners or proprietor of an accountancy firm to use their pension fund to buy their own office premises.

This often overlooked strategy holds several advantages for the smaller accountancy firm, too. ‘It provides a happy medium,’ says Anthony Carty, group financial planning and business development director of Clifton Asset Management. ‘The partners feel the money is being put to good use, the capital gains remain in the pension for tax purposes, the rent goes to the pension, and any asset held in the pension is creditor-protected.’

Balance sheet encumbrances

Separating the property assets from the business can also help with other issues, such as succession planning. ‘If a practice owns a property, it can be an encumbrance to have a large commercial asset on the balance sheet,’ says Carty. ‘A buyer may want the trade but not the bricks and mortar. If it’s in the pension environment, it’s not an asset of the business, so it doesn’t interfere with that.’

If a practice already owns its premises, this approach can still be beneficial. Commercial property can be transferred into a pension scheme as a series of in-specie contributions up to the annual limit of £40,000, generating immediate tax benefits for the partnership.

If not, the main obstacle to this plan is having enough funds in the pension plan to purchase the property. Pension funds can borrow, but pension reforms in 2006 restricted borrowing to 50% of the accumulated fund. Partners can of course pool funds, but then consideration needs to be given to whether to use a small self-administered scheme (SSAS) or a self-invested personal pension (SIPP) as the vehicle. The rules are broadly similar, but in a SIPP the property is owned by the SIPP provider, whereas in an SSAS the property and other funds are owned by the member/trustees, which may make it easier to unwind multiple ownership.

Business investment

Even if purchasing a commercial property is out of the question, there are other ways to link your pension and your business. Many accountancy firms are now using their pension funds to invest in their own businesses, unlocking a source of funding that is far cheaper and tax advantageous than bank overdrafts or peer-to-peer lending.

Such a loan obviously needs to be secured on assets of the business; in the case of an accountancy practice, this will often be intellectual property – an asset many firms may not realise they possess.

‘There are few businesses that don’t have some intangible assets,’ says Jim Asher, director of IP valuation services at specialists Coller IP. ‘But many firms continue in business without realising they have any, and there’s much less likelihood they will be on the balance sheet.’

A prime example would be the name of the firm: the Big Four recognise the value of their brands and guard them jealously in Swiss holding companies. But the name of a medium-sized practice may carry a lot of weight in a local or regional buying community. Alongside that come client lists: ‘We have, a number of times, put a value on a client list as long as it has the potential to bring in future business,’ says Asher. ‘If you can demonstrate the ability to bring in revenue over the years, and loyalty to the firm, that’s low-hanging fruit.’

There is an emotional aspect to putting personal wealth on the line in this way, but, as Carty points out, in this environment it is very difficult for the small business owner to get funding without putting personal assets on the line: ‘If you lose £10,000 of net-tax-paid wealth, you have to go out and earn almost £12,000 to get that back,’ he says. ‘If you lose £10,000 out of your pension, it costs £10,000 to replace as you get tax relief. There’s a mathematical benefit to losing your pension as opposed to other personal assets.’

In the dark

This aspect of funding is not well understood and is still treated with some suspicion. Carty says that initial reactions tend to range from, ‘It sounds too good to be true’ to ‘Why hasn’t my adviser told me about this?’

But nor should any of these arrangements be entered into lightly. HMRC rules on borrowing and contributions need to be followed carefully, and both mortgages and market rent will have to be paid on property, whatever the circumstances.

However, recent changes to pension law have started to break down the silo mentality that many people have about their finances. Business owners over the age of 55 could even be tempted to use new pension freedoms and draw down all their pension savings, but this would attract a hefty income tax charge. Pension funding to finance or refinance the business is a far more attractive alternative. And in an uncertain environment, such as the current post-Brexit climate, having one’s financial future not only under control but literally in view at all times is no bad thing.

Mick James, journalist