Small Self Administered Pension Scheme (SSAS) – Fully Independent Advice Kent
A SSAS is a company pension scheme where the members are usually all company directors or key staff. A SSAS is set up by a trust deed and rules and allows members and employers, greater flexibility and control over the scheme’s assets.
Contributions paid to a SSAS are subject to the same rules as other registered pension schemes. Consequently there is no limit on the level of member contributions but tax relief is restricted to the higher of £3,600, £40,000 or 100% of UK earnings. Tax relief is also limited by an individual’s Lifetime Allowance. Contributions made by the employer are also limited. Employer contributions are deductible against corporation tax provided that they are wholly and exclusively for the purposes of the employer’s trade.
SSAS loans can be made to the sponsoring employer but are subject to certain conditions set by HMRC. These include:
- The loan should not exceed 50% of the net market value of the scheme’s assets
- The loan should be secured against assets of an equal value by way of a first charge
- The loan’s terms should be no longer than 5 years Interest of at least 1% above bank base rate should be charged on the loan
The trustees of a SSAS can invest in a broad range of investments, including:
- Commercial property and land;
- UK quoted shares, stocks,
- gilts and debentures;
- Stocks and shares quoted on a recognised overseas stock exchange;
- Futures and options quoted on a recognised stock exchange;
- OEICs, unit and investment trusts;
- Hedge funds;
- Insurance company funds;
- Bank and building society deposits
- Gold bullion
SSAS shareholdings in the sponsoring employer should not exceed 5%. Shares can also be bought in more than one sponsoring employer as long the total holdings are less than 20% and shares in any one sponsoring employer are less than 5%. There is no restriction (apart from the self-investment restrictions above) on the percentage of shares which can be held in one company.
If the SSAS is deemed to be an investment regulated pension scheme (IRPS), tax charges will apply if the scheme invests in taxable property. The definition of an IRPS includes: Company schemes where there are less than 50 members and at least one of them (or a person related to a member) can direct, influence, or advise on investment matters relating to the scheme;
Company schemes that do not meet the above conditions but a member (or a person related to a member) can direct, influence of advise on investment matters relating to the member’s arrangement. Taxable property means investment in residential property and tangible moveable property, e.g. fine wines, vintage cars etc. If investments are made in taxable property, an unauthorised payment charge and a scheme sanction charge will apply. Capital gains can also apply on the sale of a taxable property. SSASs may borrow to invest and to provide a member’s benefit which has become payable. The maximum amount that can be borrowed is 50% of the net asset value of the scheme.
We generally recommend that commercial property is held in a SSAS
Reason One: Security
A SSAS is a trust so assets held within it are free from creditors’ claims.
Reason Two: Capital Gains Tax Benefits
Assets within a SSAS can grow in a tax-free environment.
Reason Three: Inheritance Tax Benefits
A SSAS can be used as a family trust with children and other beneficiaries as members, providing a simple way to effectively plan for IHT.
Reason Four: Corporation Tax Benefits
There are two main advantages;
a) Property is added to a SSAS as an in-specie contribution and is treated as an allowable expense. This may remove any CT liability in the current year, but can often trigger a CT refund.
N.B. It is important to mention that although some SIPP and SSAS administrators have recently been challenged by HMRC over in-specie contributions, the challenges have been around claiming tax relief at source. We claim tax relief via CT as the contribution is an allowable business expense, so this issue does not arise.
b) Rent paid into the SSAS by the company is an allowable expense.
N.B. Where the lessee is connected to the SSAS, market rate must be applied.
Reason Five: Personal Tax Benefits
There are two main areas of benefit;
a) If the commercial property is moved to the Ltd Company before being contributed to the SSAS in-specie this will create a credited DLA which can be repaid by the company at some stage in the future.
b) As rents are paid to the SSAS and not to the business owner personal tax is reduced.
Funds can be withdrawn from the SSAS (after the age of 55) with the first 25% tax-free.
Although the other tax implications must be considered, (CGT, VAT, SDLT) it is usually the case that business owners are better off holding their commercial property in a SSAS.
Advice on small self administered schemes (SSAS) is essential
SSAS offers incredible investment flexibility and the opportunity for dynastic tax planning – particularly in family businesses. They are particularly suited for use as a tax exempt vehicle for holding commercial property.
They are not available to the self employed who should consider SIPP. They are most often used by director shareholders in small to medium size limited companies.
Contact Us the small self administered pension scheme (SSAS) experts for further information.
Independent & expert small self administered pension scheme (SSAS) advice from the whole market. We are based in Ashford Maidstone & Canterbury in Kent.