SSAS – what is it, and what does it do?
SSAS is an acronym for Small Self-Administered Scheme. In short, they are pension schemes established by companies for senior employees, but predominantly for directors and are tied to their business.
A SSAS is registered with HM Revenue and Customs (HMRC) and so benefits from the usual generous tax reliefs afforded to pension schemes such as:
• No income tax charge on allowable investments
• No capital gains tax due on disposal of investments
• A tax-free lump sum on retirement
• Tax free death benefits in the form of a pension or a lump sum on death before age 75*
*On attaining age 75 death benefits are taxed at the recipient’s marginal rate of income tax.
So, what are some of the key benefits for company directors or senior employees have a SSAS…
Funding Business Growth
A SSAS can potentially be used to offer a secured loan to the business up to 50% of the net asset value of the fund, or even buy shares in the business up to the same percentage.
Members of a SSAS are usually scheme trustees, which means that the members get more of a say in the running of a scheme than would be the case with a Self Invested Personal Pension (SIPP), which operates a sole trustee/operator model.
On the death of a SSAS member, the decision as to where any death benefits are distributed would be that of the scheme’s trustees. The situation in a SIPP is different, as the decision rests with the SIPP operator, who is usually the sole trustee, who is not obliged to take account of the wishes of the SIPP’s members.
Where the business is family based, then there is opportunity to create some inter-generational planning.
A SSAS is not authorised via the FCA. So, there is potential for a wider investment flexibility than a SIPP. However, care must be taken in terms of risk and accessibility for the members.
Let’s look at a case study to see how a SSAS can be of benefit to a business.
Building Services Ltd
Paul, Stephen, and Emma are equal shareholders and directors of Building Services Ltd, a specialist construction company established 3 years ago. in the current year after their directors’ remuneration, Building Services profits are £200,000. Each of the directors spent more than 20 years as employees in the construction industry. They all had accumulated pensions in personal pension plans.
Building Services Ltd was approaching the end of its rental lease and required larger premises to allow its continued expansion. The company accountant advised them to consider purchasing some premises.
The directors researched the market and found that suitable premises could be purchased for around £1 million. Initially the directors considered purchasing the property directly via Building Services Ltd. However, their bank told them they needed a deposit of at least £400,000 before they would consider a £600,000 mortgage. The mortgage would be subject to a 2% arrangement fee – £12,000.
Their Financial Adviser made another suggestion. They could establish a SSAS for the directors of Building Services, amalgamating their existing pension arrangements and raise the deposit to buy the property within the SSAS.
The SSAS pension provider advised the directors that their SSAS could borrow up to 50% of its net asset value to assist with purchasing assets. Based on the transferred funds of £600,000 they would therefore be able to borrow a further £300,000 for the property purchase.
After further consultation with their accountant and the SSAS provider, the directors decided to pay a pension contribution of £150,000. This was relievable against corporation tax to ensure that they had sufficient funds to complete the property purchase before their lease expired.
Overall, the directors succeeded in purchasing the property and were able to raise the deposit largely using existing resources. The cost of arranging this element was a fraction of the set-up fee for the bank mortgage. They could pay off the £600,000 bank mortgage in just 4 years.
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