What is a SSAS?
A small self-administered scheme (SSAS) is an occupational pension scheme set up under trust with fewer than 12 members. The SSAS is registered with HMRC and governed by a trust deed and rules.
A SSAS is primarily set up for private and family run limited companies for the benefit of the owner directors and senior employees. The members are also trustees and so have considerable control and flexibility over the scheme assets and investment strategy.
Why choose a SSAS?
A SSAS provides a tax-efficient environment in which a company’s profits can be invested to provide significant retirement benefits for directors and other key employees.
A SSAS gives company directors the opportunity to make their pensions work harder prior to retirement by giving them control over their investments. Unlike other pension schemes, the directors can invest their pension funds in their own company, for example through loans or by purchasing commercial property to lease back to the company at an open market rent.
In addition to being a tax-efficient fund, assets held in the SSAS are generally protected from creditors of the company.
With the right advice, business owners can make their pension funds work for their business whilst building up substantial pension funds to benefit them and their families.
How is a SSAS set up?
A SSAS is established under its own individual trust by the sponsoring employer for the benefit of the scheme members. All members of the scheme should be trustees, however membership is at the discretion of the sponsoring employer.
Contributions to the scheme are usually paid in by the sponsoring employer and treated as a business expense when calculating corporation tax.
The sponsoring employer pays the contributions into a separate bank account specifically set up in the names of the trustees. Funds can also be transferred from other external pension arrangements.
The money in this account is invested and grows with interest, dividends, rents and further contributions. In addition any asset purchased or transferred ‘in specie’ may increase in capital value to build member funds.
Other companies may subsequently join the SSAS as sponsoring employers.
What are the Tax Benefits of a SSAS?
Under current legislation a SSAS enjoys considerable tax benefits, as follows:
- The company’s contributions would normally qualify for Corporation Tax relief for the accounting period in which they are paid.
- Members can pay personal contributions (which would qualify for Income Tax relief) but it is normal for a SSAS to be funded by employer contributions, to reduce National Insurance liability.
- Investments are generally exempt from UK Income Tax and Capital Gains Tax (CGT).
- On retirement, a tax free lump sum of typically 25% of the fund can be taken.
- There is no Inheritance Tax (IHT) on pension scheme funds.
- If a member dies before age 75, irrespective of whether they have drawn benefits or not, their entire remaining share of the fund may be paid free of tax to their nominated beneficiaries as a lump sum or income.
- If a member dies after age 75, payments to a nominated beneficiary will be subject to income tax at the beneficiary’s marginal rate.
- Fees can be paid by the employer and would be treated as a business expense.
What investments can a SSAS make?
We will permit any asset provided:
- the asset does not give rise to a tax charge under the pension rules
- we can obtain satisfactory title to the asset
- ownership of the asset will not give rise to an unacceptable liability or risk
Under the pension rules, certain investments such as residential property or tangible moveable property (e.g. art, antiques, classic cars and plant & machinery) will incur penal tax charges.
The following investments are generally permitted and will not incur a penal tax charge for investing in them (subject to certain conditions and limits being met):
- Cash and Deposits
- Commercial property and land
- Hotels, care homes and public houses
- Agricultural land
- Real estate investment trusts (REITs)
- Syndicated property investment (commercial)
- Stocks and shares
- Insured pension funds, including trustee investment plans (TIPs)
- Unit trusts and open ended investment companies (OEICs)
- Investment trusts
- Structured products
- Authorised collectives, platforms and investment portfolios
- Loans to a sponsoring employer (must be secured)
- Loans to genuine unconnected parties
- Gold bullion
- Hedge funds
- Unlisted shares
In addition, the trustees can borrow up to 50% of the net asset value of the SSAS.
Please note that the above list of investments is not exhaustive. If you wish to discuss whether a particular investment is acceptable or not, please do contact us.
Some investments are higher risk than others. You should understand the risk profile attached to different investments and discuss this with an authorised financial adviser, if you have one.
ARC Trustees does not provide investment advice. We recommend you speak to an authorised financial adviser prior to making investment decisions.
How can ARC Trustees help?
We will prepare all of the necessary paperwork to establish the SSAS, register the scheme with HMRC and the Pensions Regulator and set up your initial bank account.
We will act as professional trustee and Scheme Administrator to the SSAS providing a full range of administration services and carrying out all the necessary reporting as required by HMRC.
We aim to work closely with you and your professional advisers to ensure your SSAS delivers for you. To achieve this, we intend to meet with you once a year (at no extra cost – this is included in the annual administration fee) to review your SSAS and relevant changes in your personal or business circumstances and to keep you up to date with the latest pensions legislation.
For more information, please call us on 0161 940 9000.