SSAS Pensions summary Presented by Paul Barry
Overview SSAS – What are they? What can a SSAS do for a business? Contributions, Standard and Advanced Transfers Investments Commercial Property Questions
Small Self Administered Schemes 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 of 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 Defined Contributions Final Salary Trust Based Contract Based For Individuals SIPP SSAS For Individuals For Business F.C.A TPR
Small Self Administered Schemes 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
Lay Trustee Legal owner of the scheme responsible for the management & governance, Member including assets Sponsoring Employer Individual who is or will be UK registered employer entitled to receive benefits who established the SSAS from the scheme, or is associated with May or may not contribute the scheme Limited Company or LLP Professional Trustee Administrator Independent Individual or Individual or company that is company acting as a joint responsible to HMRC for the trustee to promote good scheme’s reporting Regulation governance Ensures legal operation of advises lay trustees scheme 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. Considerations: 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
Advanced (indirect) Contributions General Fund 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
Advanced Contributions General Fund 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
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 2019 2020 200k profit 200k profit 200k profit £500k Contribution - £300k from 2019 - £100k from 2018 CT Calc is 200-500 CT Calc is 300-200 CT Calc is 200-100 = - £300k So, CT refund of = - £100k So, £0 CT £38k 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 of 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 The Six reasons why CP should be in a SSAS 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 on 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
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 opportunity Businesses that have cash, can in effect get a discount due to CT saving on contribution
Property into Pension – Route 2 Contribution XYZ Ltd’s SSAS 1) Ltd company owns property 2) Contributes to SSAS N.B – Not in-specie XYZ Ltd Contribution is an allowable expense in the year its made (subject to spreading of relief test) Where borrowings exist – min 66% equity & only equity is allowable expense
Property into Pension – Route 3 Contribution Business owner owns property XYZ Ltd’s SSAS 1) Moves property to Ltd Co XYZ Ltd Movement creates credited DLA Need to calculate CGT
Property into Pension – Route 3 Contribution XYZ Ltd’s SSAS 2)Ltd Co makes contribution to SSAS XYZ Ltd Contribution is an allowable expense in the year its made (subject to spreading of relief test) Only one lot of SDLT due (sub-sale relief)
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 £4,000 This would normally be dealt with £130,000 account by dividend, so taxed at 32.5% Corporation Tax £400,000 The contribution qualified under £76,000 the wholly and exclusively rules so would be an allowable expense at 19% SDLT £400,000 Using Sub sale relief (£9,500) Only one lot of SDLT is payable CGT £70,000 gain This was calculated to be £11,000 (£22,000) each person each Overall Tax Effect The Clients were better £174,500 off by
Commercial Property C.A.R.T.S (Compound and Rent Tax Saving) Who receives rent Monthly Tax Net invested Total Value Rental per month 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
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