Gareth Bertram on how a specific type of pension scheme can be a potential source of finance for your business.
If you’re the director of an SME business then did you know that you could be using your former employee or private pensions to support and invest in your business or property!?
You might also be surprised to learn that you could potentially be missing out on some significant tax benefits as a result. A company SSAS gives directors immediate control over former, and existing, pension funds which can be invested in their business or in property.
Read on to find out more about this scheme and how it can be an alternative source of business finance.
What is a SSAS pension?
The ‘Small Self-Administered Scheme’ (SSAS) is a pension scheme, usually established through a limited company on a defined contribution basis. These pensions are generally set up for the retirement benefit of the company directors, family employees, and key personnel.
The SSAS is run by its Trustees, who can be members of the scheme, with contributions made to it by the members and/or the employer. First introduced by HMRC over 30 years ago, it's tailored and exclusively available to SME business owners. It has similar traits to its cousin, the SIPP, but offers its members more control and flexibility.
Equally unfamiliar is how cost effective they are to set up, being flexible and tax efficient. With a SSAS, you are in control. This is often the reason that the SSAS pension is not promoted as a firm favourite amongst some financial advisors. Offering company directors control over their pension funds and investments isn’t necessarily well aligned with some IFA business models. Usually, they are in control of the fund and a fee is charged for such a service.
For SME owners, the tax and investment benefits of the SSAS are potentially significant. As with all pension schemes, there are options such as taking a tax-free lump sum and an income in retirement. However, with this particular pension there are additional benefits available.
To be able to buy and hold commercial property and land within a SSAS is a potentially attractive draw, also adding security and tax benefits. Assets are sheltered for future generations within the SSAS and potentially protected from inheritance tax.
A source of finance
The ‘loanback’ is another unique feature of the SSAS that many SME directors are often unaware exists. This offers the ability to make a loan of up to 50% of the value of your pension, to your company for any use. For example, you could use the funds in your pension for stock acquisition in your company, or if needed, a simple capital injection.
A SSAS provides the key essentials of wealth management and business growth; the flexibility and control over money in your pensions for immediate use today, regardless of your age.
The ability to set up a company SSAS pension is exclusively accessible to those who operate as directors of their own limited, trading companies. Once established, a SSAS pension can invest in all the areas allowable through a traditional pension scheme, such as stocks and shares, commodities, corporate bonds and gilts as well as giving the members vast additional powers and opportunities.
How a SSAS pension works
Up to 11 members can be invited to be a part of the company SSAS. Members act as trustees (Member Trustees) of the scheme. This is usually alongside corporate or professional trustees, appointed by the scheme to ensure that any transactions made by the pension scheme adhere to HMRC rules and regulations. This is extremely important to help you avoid potentially significant tax penalties.
With all the flexibility and opportunity that this type of pension offers, some might be forgiven for thinking that this would be a higher cost option, but that's not the case. Not only is the ability to make money enhanced and the tax benefits unrivalled; administration, management and other fees are charged on a fixed basis rather than traditional percentage charges. This means there’s potential to achieve savings.
The content of this post is up to date and relevant as at 06/01/2020.
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