Case Studies

PROPERTY PURCHASE

A SSAS may own commercial property which can be purchased from the company or members and leased back on commercial terms; this releases capital back to the company.

The SSAS pays no capital gains or income tax and rent paid by the company is a business expense. It does not count towards the member’s pension contribution limit.

The SSAS may also borrow up to 50% of the value of its net assets to buy property. If you had a pension fund of £200,000, the SSAS could borrow £100,000, giving purchasing power of £300,000..

An Example

Mr and Mrs Booth both have existing pensions from previous employment. After establishing a new business together, they decide they will need to purchase offices from which to work.

Mrs Booth’s existing pension is valued at £50,000
Mr Booth’s existing pension is valued at £150,000

They find the perfect property that meets all their requirements, however it is valued at £250,000.

Both transfer their existing pensions/pension arrangements into their SSAS giving the SSAS a total value of £200,000 and they can therefore borrow the funds needed to purchase the property.

Any increase in the value of the property within the SSAS is exempt from CGT
Rent paid into the SSAS is exempt from Income Tax and can be treated as a business expense.

Team

LOAN BACK

It is possible for a Small Self Administered Scheme to make a loan to the principal or associated employers.

The loan must make meet HMRC requirements

Maximum of five years
Capital and interest repayments
Commercial rate of interest
The loan must be secured on a first charge basis
Maximum loan is 50% of net scheme assets

The security need not be provided by the principal employer.

The purpose of the loan must be for a business use. To purchase an expensive car for a director may be seen as an indirect loan to a connected party.

An example

Joe has a manufacturing business and needs new equipment to improve productivity and be more competitive in his marketplace.

His SSAS is established and he has transferred existing pension funds of £300,000 to the scheme.

The maximum he can lend to the business is £150,000.

The business already has a bank charge over its assets so to meet the security requirements Joe uses an unencumbered holiday home he owns as a security.

Although the holiday home is a residential property, the SSAS only has a security so there are no tax issues.

The loan repayments will attract corporation tax relief, and as this is investment income, it does not count towards Joe’s annual allowance for pension contributions.

SSIP TO SSAS

It is possible to transfer between registered pension schemes. We normally think of this as a cash transfer but it is possible to transfer the actual asset known as an In Specie Transfer.

A situation where this is most attractive is where there is multiple member ownership such as a property syndicate.

The change from allocated assets to a pooled fund provides greater flexibility in managing the payment of benefits. Many SIPP syndicates were set up by partnerships to purchase and lease back their practice’s premises.

The approaching retirement of a partner and the need to create liquidity to pay their benefits without the loss of the use of the building to the partnership is a typical example of the advantage of pooling within a SSAS.

In this scenario, the SSAS was established by a partnership rather than a limited company, this is a perfectly acceptable arrangement under current HMRC rules.