The recent decision to scrap the lifetime allowance, the cap on the maximum amount you could save into pensions without extra tax charges, may encourage certain business owners to further optimise their retirement assets. A small self-administered pension scheme, or SSAS, can be a tax-efficient way for family businesses to build up their retirement nest egg.
What is a SSAS?
A small self-administered pension scheme is a multi-member workplace pension scheme for limited companies. SSASs are designed for owner-managed and/or family businesses, and they can have up to eleven members. Each individual scheme must be set up as a separate trust, which provides greater investment flexibility.
What can a SSAS invest in?
Members’ individual ‘pots’ are typically pooled into a single fund, providing an opportunity to invest in assets collectively. This may allow for larger assets, such as commercial property, to be purchased. A SSAS can also invest in all of the investments that a pension scheme can. Trustees can invest directly in private equity, and can also make a loan back to their own business, which can be a very attractive benefit.
Lifetime allowance change provides boost
The removal of the lifetime allowance penalty tax charge, together with the increase in corporation tax, may tempt more small business owners to build up an existing SSAS, or set up a new scheme. There is now no upper limit on the size an individual’s pension can grow to without incurring an extra tax liability, so larger investments – such as a commercial property purchase – may be increasingly attractive within this context.
The increase to the pension annual allowance (from £40,000 to £60,000) may also provide an incentive to put more towards a SSAS, especially when this is combined with ‘carry forward’ of unused allowances.
Other tax benefits
As is the case with standard pension schemes, contributions to a SSAS benefit from tax relief. Members can also benefit from employer contributions, and corporation tax relief on contributions to the pension from your business. Contributions from an employer also lead to National Insurance savings.
Loan advantages
The SSAS can also make a loan to a family/connected company. The result of such a loan would be the return of the capital over a five-year period and the interest payable is considered the investment return, as opposed to being paid to a third-party bank or another party. This boosts the member’s pension value, but the increase does not count towards an individual’s annual allowance.
SSASs are a challenging area of retirement planning and we recommend you seek expert advice before you take any action. Call 03300 564 446 to discuss your options, or get in touch using our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
