2016-03-29 |
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Consider Pension Funds to Free Up Cash Flow
Farmers should consider using their pensions to free up cash flow during the current downturn, according to Old Mill accountants and financial planners.
With commodity prices on the floor and many farmers’ Basic Payments delayed, cash flow is particularly tight, says chartered financial planner Suzanne Williams. “Farmers may already have approached their bank to secure additional lending, and will certainly have already considered how to reduce outgoing payments, but there are other alternatives,” she adds.
Suzanne Williams
Many farmers have pension funds that are not being taken advantage of as a possible source of cash for their businesses. “Since the pension rules changed in 2015 it has been possible to access unlimited funds from your pension if you are over the age of 55,” says Ms Williams. “This means if you are currently taking no or very little income from your business, it may be possible to take money from your pension very tax efficiently.”
Another alternative – at any age - is to use a self-invested personal pension fund to purchase land from the farm, which would release cash back to the farm. “The land would then be owned by your pension fund, and the farm would need to pay a market rent for it – which in turn reduces potential Income Tax liabilities and adds to the pension fund coffers.”
In time, the land could be repurchased by the farm, transferred back to the pension holder as a tax free cash sum once they are over the age of 55 (subject to being within the tax free cash limits), or gifted to the next generation’s pension fund. “However, it is essential to review the type of pension you hold, as a pension transfer may be required and you need to ensure you’re not giving up valuable guarantees,” says Ms Williams.
“There are also Capital Gains Tax considerations on the sale of land to the pension fund, which would need to be factored in,” she warns. “However, with the latest reduction in CGT rates announced in the Budget, it’s certainly worth considering, especially if you are not yet 55.”
This is also a good time to review any old life cover policies or investments, to see if they are still doing the required job. “Are you paying out insurance premiums on life cover policies, and are these still required,” she asks. “Do you have investments or shareholdings that have not been reviewed in a long time – and could the value held in these serve you better in your business? Many farmers hold Genus and Dairy Crest shares, which can be forgotten about, and so it could be worth a look.”
Of course, farmers should always seek professional advice and consider their short term and longer term needs, warns Ms Williams. “This is especially true when it comes to using your pension, as its ultimate purpose is to provide an income in retirement.”
