Guest blog: An alternative way to fund your business, which we guarantee you won’t have thought of


AstuteThe last six years have been a tough time to be in business and although the future is looking increasingly more positive, there are still hurdles to overcome.

Does this scenario sound familiar?

  • You have used the liquid capital in maintaining and restructuring your business, to put it in a position where it can capitalise on the growth which now looks more certain
  • Growth has put further strain on liquidity
  • Despite your businesses’ strong balance sheet, your bank either will not lend, or proposes unacceptably punitive terms

What are the alternatives?

  • Crowd lending?
  • Secondary lending?
  • Factoring?

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These may offer a solution, but in reality how easy are they to access? Is there an alternative?

Let’s just stop right now!

Let’s just look at your business and review the assets you have built up. These might include property, stock, sales ledger, plant and machinery. What about any special process you have, patent, brand or any other types of Intellectual Property?

If you have already borrowed from your bank, in most instances the floating charge you have had to give, will not cover Intellectual Property. If it can be identified, could this be the answer to your cash flow concerns?

Intellectual Property is an acceptable pension investment and works very similar to commercial property, as it has an initial capital value and also a valuable ongoing annual royalty fee.

There have traditionally been two main difficulties in the past; firstly how to value Intellectual Property and secondly the cost of valuation.

That is until now.

Astute Trustees has teamed up with a firm of valuers, who have many years’ experience in this field, with charges that are more aligned with commercial property valuation costs.

Once any Intellectual Property has been identified and valued there are two ways it can be used:

  1. The pension purchases the Intellectual Property, cash is paid to the company, which then pays an annual licence or royalty back to the pension
  2. The company makes an ‘in-specie’ pension contribution of the Intellectual Property to reduce a Corporation Tax liability

The best option will of course depend on what you are looking to achieve; increased liquidity or reduced tax.

Increasing liquidity – an example

Widget Manufacturing Co has been operating now for a number of years and currently has an annual turnover of £3 million. They have just received an enquiry which will increase turnover significantly, but will require an investment into additional plant and machinery, together with operator training, of £200,000. This will have a serious impact on cashflow, unless it can be funded from an increase in their overdraft or traditional asset backed lending can be found.

However, profit margins have suffered over recent years and are only now starting to improve. This means they have found it hard to obtain funding from the banks they have approached.

So how can Intellectual Property play a part in the solution?

  • The Widget Manufacturing brand is well known and has been valued at £400,000, with an ongoing royalty of £50,000 per year
  • The directors have pensions estimated to have a combined value of £1,000,000
  • The existing pensions are consolidated into an Astute SSAS (Small Self-Administered Scheme) or Astute Group SIPP
  • The Astute pension then buys the Intellectual Property , in this instance the brand, for £400,000
  • Widget Manufacturing then has the cash it needs to fund the new order

Of course, having sold an asset, namely the Intellectual Property, there may be additional Corporation Tax to pay, dependant on the level of goodwill shown in the company balance sheet.

The company will also need to make a payment each year of £50,000 per year, to the pension to continue to use the brand. But that is a tax deductible business expense and is not treated as pension contribution, leaving the Directors free to utilise their full annual allowance for their other pension contributions.

If the business is sold in the future the pension would benefit from the sale of the brand without incurring a further Capital Gains Tax liability.

Alternatively the company may wish to purchase the brand back in the future as cashflow improves, the choice is entirely yours.

Disadvantages of using Intellectual Property

Whilst this might sound like an attractive option, there are potentially significant downsides:

  • If the business fails, the value of the brand is likely to fall significantly, possibly to zero. This will dramatically impact on the value of the pension fund and reduce the income it produces in retirement
  • The Intellectual Property held in the pension is likely to represent a large percentage of the fund, significantly reducing diversification
  • Your business will need to pay an on-going royalty to the SIPP, which may impact on cashflow
  • If you sell the business and therefore the Intellectual Property, because it is held in a pension, you won’t be able to access the resultant cash until 55 at the earliest
  • The fees you pay to your SIPP provider and Independent Financial Adviser may rise as a result of a non-standard asset being held

Buying Intellectual Property through your pension can be a high risk strategy and we wouldn’t recommend you pursue this route without taking Independent Financial Advice.

Would you like to know more?

If you would like more information about this why not approach your Independent Financial Adviser and ask him to contact Astute Pensions for details, or call us direct 01772 781889 alternatively, email