SSAS Pensions summary Presented by Paul Barry Overview SSAS What - - PowerPoint PPT Presentation

SSAS Pensions summary

Presented by Paul Barry

 SSAS – What are they?  What can a SSAS do for a business?  Contributions, Standard and Advanced  Transfers  Investments  Commercial Property  Questions

Overview

Not all pensions are the same, each type of pension is created for a specific purpose. SSASs were created specifically for SME’s (small medium enterprises) and as such have a range

• f unique features that appeal to the business owners e.g.

 Holding Commercial Property  Loan Back to Sponsoring Employer  Widest Range of Investments Available  Advanced Contributions

Small Self Administered Schemes

Defined Benefit

Small Self Administered Schemes

Defined Contributions Final Salary Trust Based Contract Based SIPP SSAS For Individuals For Business For Individuals F.C.A TPR

SSASs are trust based, defined contribution schemes. The key features of a SSAS are:  Each scheme is a standalone scheme  Individually assessed and approved by HMRC  Maximum 11 Members  Must have a trading Ltd company or LLP as a sponsoring employer  Regulated by The Pensions Regulator (TPR)  Activities of the scheme are subject to HMRC rules  Administrators must be fit and proper  A corporate trustee is usually appointed  Member directed investments

Small Self Administered Schemes

Lay Trustee Legal owner of the scheme responsible for the management & governance, including assets Member Individual who is or will be entitled to receive benefits from the scheme, May or may not contribute Sponsoring Employer UK registered employer who established the SSAS

• r is associated with

the scheme Limited Company or LLP Professional Trustee Independent Individual or company acting as a joint trustee to promote good governance advises lay trustees Administrator Individual or company that is responsible to HMRC for the scheme’s reporting Ensures legal operation of scheme Regulation HMRC Approve Schemes The Pension Regulator Regulates

Contributions

Contributions

 Contributions are usually made by the sponsoring employer on

behalf of the members

 Limited to personal pension allowance (40K PA) plus any carry

forward from previous three years

 Can be either cash or in-specie*  Can be an allowable expense for Corporation Tax

N.B. In - Specie is a generic term - We don’t transfer assets directly, we use HMRC’s prescribed method of creating a contribution debt.

Standard (direct) Contributions

 Standard contributions are made directly from the employer to the member’s fund within the SSAS  Standard contributions are limited to the personal annual contribution allowance – currently £40k PA

Advanced (indirect) Contributions

Advanced contributions can be made by the sponsoring employer up to £500K per year, they are for future allocation to current and future members and future administration expenses. N.B. For Clarification £500k is the limit for complete CT (corporation tax) relief in a single year. The maximum contribution in a single year is £2 million, however, in this instance the CT relief must be spread over three years.

Advanced (indirect) Contributions

Advanced contributions can be used to great effect, however, careful thought and planning must be undertaken before making them.

 Funds distributed from the general fund use the personal

contribution allowance

 Funds cannot be “earmarked” meaning notional allocation

cannot be transferred away or distributed on death Considerations:

Advanced (indirect) Contributions

 Advanced contributions are made from the employer into the general fund  Advanced contributions up to £500k are allowable expenses in the year they are made  It is possible to make an advanced contribution up to £2million, however, tax relief is then spread over a number of years

General Fund

Advanced Contributions

 Advanced contributions are distributed in later years to members from the general fund  Assets within the general fund can be invested in the same way as personal funds  When distributed they use personal contribution allowance

General Fund

Contributions - Tax

 Standard and advanced contributions are an allowable expense

for CT purposes (subject to wholly and exclusively test)  If contributions exceed the annual profit of the sponsoring employer, the loss created can be carried back one year and a CT amendment made, after that loss is carried forward indefinitely.

2018 200k profit 2019 200k profit 2020 200k profit

£500k Contribution CT Calc is 200-500 = - £300k So, £0 CT

• £300k from 2019

CT Calc is 300-200 So, CT refund of £38k

• £100k from 2018

CT Calc is 200-100 = - £100k So, CT of £19k

Transfers

Transfers

 Current pension rights can be transferred into the SSAS  Schemes can be moved in-specie  Once funds have been transferred they can be used for any

• f the usual functions (loan backs etc.) or invested

 DC (defined contribution) schemes: the Trustees

request the transfer

 DB ( defined benefit) scheme transfers requires

regulated advice (IFA)

Investments

Investments

There are two main ways to invest: 1) To buy an asset that increases in value and then sell for a profit 2) To lend to a third party and charge a fee for the privilege A SSAS can take advantage of both of these

Investments

Purchase Asset The members of a SSAS have the widest range of options available to any pension – the only notable exclusion is Transportable Movable Property (TMP) Lending To a Third Party There are two main categories of this:  Connected loans – usually back to the sponsoring employer Limited to 50% of the fund and has criteria  Unconnected loans – to any other party No limitations – must make commercial sense

Commercial Property

Commercial Property

1. Security - Because the SSAS is a Trust, all assets are protected from creditors in the event of financial hardship (providing no fraud is involved) 2. CGT (Capital gains tax) - Assets can grow in value in a SSAS free of CGT 3. IHT - (Inheritance tax) A simple way to pass assets to family members is by making them members of the SSAS

• 4. Corporation Tax - Rents received from a sponsoring employer can be an

allowable expense. Plus … The contribution of property is an allowable expense

• 5. Personal Tax - if property is personally owned, personal tax will be paid
• n rent. No tax is payable if the SSAS receives rent
• 6. Compounding - The rent received grows free of tax and will create

exponential growth with compounding

The Six reasons why CP should be in a SSAS

Property into Pension - Route 1 Purchase

1 SSAS has funds either from a) Contribution b) Transfer of rights c) Borrowings (or a combination of above)

££

Property into Pension - Route 1 Purchase

2 SSAS purchases property

££

 Some businesses will be able to buy property that they are unaware of the

• pportunity

 Businesses that have cash, can in effect get a discount due to CT saving on contribution

Property into Pension – Route 2 Contribution

 Contribution is an allowable expense in the year its made (subject to spreading

• f relief test)

 Where borrowings exist – min 66% equity & only equity is allowable expense

1) Ltd company owns property 2) Contributes to SSAS N.B – Not in-specie XYZ Ltd XYZ Ltd’s SSAS

Property into Pension – Route 3 Contribution

 Movement creates credited DLA  Need to calculate CGT

Business owner owns property 1) Moves property to Ltd Co XYZ Ltd XYZ Ltd’s SSAS

Property into Pension – Route 3 Contribution

 Contribution is an allowable expense in the year its made (subject to spreading

• f relief test)

 Only one lot of SDLT due (sub-sale relief)

2)Ltd Co makes contribution to SSAS XYZ Ltd XYZ Ltd’s SSAS

Case Study

Case Study

James and Christine run a furniture manufacturing business in the North East of

• England. They personally owned premises that the business trades from.

 They purchased the building in 2009 for £260,000  Current estimated value was £400,000 (Later Confirmed by a RICS surveyor)  The property was not opted to tax  Neither had any other capital gain to consider  Current market rent was £45,000 per annum  James was aged 46 and Christine was 44 SSASpro advised that they:  Establish a SSAS  Transfer ownership into their Ltd Co, and the Ltd Co contribute it to their SSAS

Case Study Tax Illustration

Item Amount Tax Note Result Directors loan account £4,000 This would normally be dealt with by dividend, so taxed at 32.5% £130,000 Corporation Tax £400,000 The contribution qualified under the wholly and exclusively rules so would be an allowable expense at 19% £76,000 SDLT £400,000 Using Sub sale relief Only one lot of SDLT is payable (£9,500) CGT £70,000 gain each person This was calculated to be £11,000 each (£22,000) Overall Tax Effect

The Clients were better

• ff by

£174,500

Commercial Property

Who receives rent Monthly Rental Tax Net invested per month Total Value after 10 years SSAS £4,500 Nil £4500 £832,628 Property Owner £4,500 £1800 £2,700 £499,577

The Difference £1,800 £332,423

C.A.R.T.S (Compound and Rent Tax Saving)

Any Questions?