Gareth Bertram on on how a SSAS pension can be a vehicle for investment in property with various tax advantages.
Setting up a small self-administered scheme (SSAS) pension and investing in property is surprisingly straight forward. For company directors it is an attractive alternative to traditional pension schemes for many reasons, not least the longer-term benefits it has for families.
The unique flexibility of this option ensures you enjoy the tax advantages of a pension by investing at your discretion within set rules. The SSAS exists as its own legal entity and a pension trust, so afforded enviable tax benefits, both as you invest and grow your pension and when it comes to inheritance.
How this works, SSAS benefits
As a company director, you can set up a SSAS Pension fund and invite up to 11 family members and/or close business partners to be part of it. All of these individuals would then become trustees.
The SSAS pension is an extremely tax efficient trust that can be handed down through the generations, securing your family wealth and growing the pot, whilst still enabling you to take an income in retirement. When you are no longer around, expensive legal fees and administration costs are avoided as the pension is already owned by the family.
Benefits can be passed down, which is where traditional pensions fail. Assets can be transferred to beneficiaries easily, quickly and all within the pension’s tax efficient wrapper as they do not form part of the estate, but are pension owned. There is also privileged flexibility within the SSAS that allows beneficiaries to receive their benefits as drawdown or asset-based awards.
Investments your SSAS chooses to make, using its funds are, uniquely, at your discretion as members. If investments comply with HMRC SSAS pension rules, then because it is managed by the company director and family, expensive pension fund fees can be avoided.
Investing in property with your Family SSAS Pension
A popular investment choice is property. Such investments have many attractions including the perceived security of bricks and mortar offering steady and consistent returns, plus it's a tangible asset with relatively low volatility, in contrast to the equity markets. Property held within the SSAS is ring-fenced from creditors and does not form part of the estate, securing it for future generations in a tax efficient manner.
HMRC regulations state that a SSAS can only invest in or hold commercial property. It cannot invest ‘directly’ in, or hold, residential property. There are however, plenty of ways you can invest ‘indirectly’ in residential property. Examples include property loans, bonds, crowdfunding and loans to third party property developers, to name a few. These alternative forms of property investment can all generate potential growth for the family and have relatively low time management needs.
You might also choose to transfer existing property assets into the pension as contributions, protecting them from creditors and affording you favourable tax benefits.
Furthermore you might decide to buy your business premises through your SSAS. Doing so entrusts the property to the pension. The property could gain in value, but if sold, the SSAS as a pension does not pay capital gains tax on the profit. The asset is owned by the SSAS, but as your family are all members, the asset is essentially still controlled by them.
Rent you pay for the premises is classed as a business expense, so your company is afforded corporation tax benefits on payments to the SSAS and the rent the scheme receives, is not liable for income tax, all potentially helping to grow the pot.
Another option, your SSAS could elect to invest in property loans or bonds. These are loans to property companies that earn a fixed rate return over a set period, with this loan being repaid in full at the end of the investment term. Similarly, you could invest in property crowdfunding. Or perhaps you might want to make a third-party loan to a property developer.
The benefits of these investments are that they allow indirect access to residential property investment, which is allowed under HMRC rules. This has the added advantage of affording hands-off investments for inexperienced property investors, with smaller pots or without the required time commitment for direct & individual property investments.
The family SSAS Pension circle
The SSAS pension, opens a property investment opportunity that could benefit your family for years to come, if managed properly. The Landlord’s Pension provide advice in both SSAS pensions and property investment and have been successfully equipping company directors with the necessary tools and knowledge.
Many of their clients have invested in property and grown their pensions to fulfil a comfortable retirement while ensuring that their tax exposure is minimised where possible. In addition, the SSAS pension can carry on, holding assets in trust and paying benefits to their families, long after they've gone.
Be sure to get in touch with a Partner at Wellers or contact The Landlord's Pension directly to find out more.
The content of this post is up to date and relevant as at 04/02/2020.
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