HOW TO ESTABLISH A SSAS:
INTRODUCTION: WHAT IS A SSAS?
A Small Self Administered Scheme (SSAS) is a type of Occupational Pension that is established using a Trust by a Limited Company – The “Sponsoring Employer”. The Scheme is established by the Directors of the Sponsoring Employer to provide retirement benefits for the employees (which includes the Directors).
In order to qualify for a whole list of tax benefits – the SSAS needs to be granted a ‘Pension Scheme Tax Reference’ or PSTR Number by HMRC. Once approved, the SSAS becomes an ‘Approved’ pension. As such it will need to adhere to all the pensions rules and regulations, that restrict certain aspects of the SSAS – such as the Lifetime Limit, Maximum Lending/Borrowing rules and of course the restriction on investing into Residential Property.
A SSAS can have up to 12 Members – and all Members MUST also be Trustees of the Scheme. If your business has multiple Directors and they each have partners and grown up children, there is a benefit to SSAS planning in having them included as Members/Trustees too.
HOW IS A SSAS DIFFERENT TO A SIPP (Self Invested Personal Pension)?
There are a number of key differences between a SSAS and a SIPP here are some of the main ones:
A SSAS is an Occupational Scheme which can have multiple members all under the one Trust with the Trustees being the Members themselves – whereas a SIPP is a personal arrangement established under a single Trust which is administered by a SIPP Provider, who acts as the Professional Trustee. A SSAS is not FCA Regulated, and a SIPP is FCA Regulated. This lack of FCA Regulation has lead to a number of SSAS’s being established for the purposes of investing into some dubious schemes. Hence HMRC will check every application for Scheme Approval very carefully before granting a PSTR Number.
Segmented Solutions do not get involved with investment advice and will never recommend or refer you to any investments, and we do not condone pensions liberation of any kind.
The Directors of the Sponsoring Employer have greater flexibility in terms of how they manage and invest their money in a SSAS – which is why many of the SSAS’s we work with have accepted multiple incoming SIPP Transfers to make the SSAS funds larger by combining multiple smaller SIPP funds into the 1 SSAS fund. Other approved pensions can be transferred into a SSAS, which also enables the SSAS to access funds for property and other investments.
Unlike a SIPP – a SSAS can invest into the shares of the Sponsoring Employer. The maximum investment being 5% of the fund value.
A SSAS can grant loans to the Sponsoring Employer to assist with cash flow – whereas a SIPP cannot grant loans to any company related to the Member. The maximum loan to the Sponsoring Employer is 50% of the Scheme’s assets as long as a 1st Charge Security is put into place.
Contributions to SSAS’s and SIPPS are also different. A SIPP contribution follows the rules for maximum allowable INDIVIDUAL contributions (typically £40,000). Unlike a SIPP the contributions to a SSAS can be made as general contributions that are not earmarked for any 1 specific person. What this means is that the Sponsoring Employer can make contributions to the SSAS that exceed £40,000 per person. As long as the contributions are seen as being in the best interests of the business and the employees and pass the required accounting tests. Indeed this ‘general’ rule can apply to contributions of up to £500,000 in 1 accounting year. Anything higher in terms of contributions will have the tax relief spread over a number of accounting years.
RESIDENTIAL PROPERTY INVESTMENTS:
Pension Regulations do not allow a SSAS (or indeed a SIPP) to hold direct investments in Residential Property. However there are a number of allowable diverse investment structures that can assist when you want to make investments into Residential Property and still qualify for all the tax benefits associated with a SSAS (Such as no capital gains tax on the sale of assets, no IHT on death and no income tax on rental income).
If you wish to explore Residential Property investment opportunities, then please ask us for more information when you email us using the form above.
LIFETIME LIMIT PLANNING:
One of the biggest issues for clients with larger pensions, is that of the Lifetime Limit. This restriction can put a stop to ‘new’ tax relieved contributions as well as posing a problem where rental income from property investments adds to to being more than the rate of inflation (the rate at which the Lifetime Limit increases). We do have a solution to this within our overall retirement planning. Again, everything depends upon the scenario, and we always begin with a FREE technical consultation.
There is a tax planning blog which will give you a range of additional notes and ideas: https://elitewealthservices.com/elite-wealth-tax-planning-2020