Small Self Administered Scheme
What is a SSAS?
A SSAS is a tax efficient pension
scheme, which can be established by company
directors & key employees. It gives each member
a control over their respective investments and
continues to be the most flexible pension
arrangement for Shareholding Directors
Who are they for?
These schemes are ideally suited for Shareholding
Directors of small to medium sized limited
companies.
How do they work?
As with any other pension
arrangements, a SSAS is a most tax efficient way of
saving for retirement. A SSAS allows company
directors to maintain control of their pension
arrangements within a flexible and tax efficient
environment. The Scheme is governed by a Trust Deed
and Rules and is a separate legal entity from the
sponsoring company.
Company contributions can be
varied in line with profitability and there is no
contractual commitment to pay any particular level
of contribution. The Trustees can invest the scheme
assets in a wide range of areas .
What are Permissible Investments in a SSAS?
The trustees are responsible for
implementing an investment strategy although the
assistance of a professional adviser is usually
required. It is possible to invest in a broad range
of investment all of which are usually free from
income, corporation and capital gains tax. They
include:
- UK quoted stocks, shares gilts and
debentures
- Shares quoted on the Alternative Investment
Market (AIM)
- Stocks and shares traded on a recognised
overseas stock exchange
- Bank and building society deposits
- Unit trusts and investment trusts and OEICs
- Hedge funds
- Insurance company funds
- Real Estate Investment Trusts (REITs)
- Commercial land and property (directly and
indirectly)
Commercial Property & Land held in a SSAS?
It is possible for the SSAS to
invest directly in commercial land or commercial
property but not residential property.
This option has been very popular
over many years as it provides the opportunity to
purchase a property with funds that enjoy the
benefit of tax relief. There are a number of
excellent benefits to be obtained for business
looking to set up a SSAS. These are as follows:
- It is possible to purchase property from the
sponsoring employer
- This often results in assisting the business
with raising funds.
- It s possible to raise additional borrowing
to either improve the commercial premises
(expansion) or purchase another commercial
property/land
- The SSAS trustees can register for VAT, thus
providing an opportunity to reclaim any VAT paid
by the scheme
- The trustees, often the owners of the
sponsoring employer, retain control of the
property.
- Any property held within a SSAS is sheltered
from business creditors
- All rental income and capital gains are free
from taxation and any rental income paid by the
sponsoring employer is an allowable business
expense
- The property can be part-owned between the
business and the SSAS or the SSAS and any other
property owner, e.g. a shareholding director of
the sponsoring employer could sell part of
the commercial property to the SSAS and retain
personal control over the remaining share.
All property transactions must be conducted on an
arm's length basis. Where the property is being
purchased, sold or let to the sponsoring employer,
member or other connected person, then the value of
the property and assessment of the rental value must
be confirmed by an independent chartered surveyor.
Tax benefits?
There are various tax benefits available.
Contributions paid by the sponsoring company on
behalf of any member WILL be allowable as an expense
of the company against corporation tax providing
certain conditions are met and procedures followed.
Investments usually accumulate free of any income
and capital gains tax, and a percentage of each
member's share of the fund can be paid out as a tax
free lump sum from age 50 (55 from 06.04.2010)
without the need to actually retire.
Flexibility and control can be maintained even
beyond retirement as a pension income can be paid
out of the accumulated Scheme assets for the life of
the member.
Minimum and maximum contributions for a SASS?
There is no requirement to
contribute a minimum amount into a SSAS. There is
also no maximum level of contributions that the
sponsoring company can pay into a SSAS on behalf of
its employees, however the company will only achieve
corporation tax relief on an amount up to £245,000
(in the 2009/2010 tax-year) per employee. This is at
the discretion of the Local inspector of taxes but
could be achieved providing certain conditions are
met and procedures followed.
Can other funds be transferred into a SSAS?
A SSAS can also receive transfers
from most other pension arrangements that a member
may hold, although we would recommend that financial
advice is taken prior to any transfer. It is
currently not possible for a SSAS to accept any
Protected Rights funds or monies from a
Contracted-Out Occupational Pension Scheme, (e.g.,
COSR scheme).
Can a SSAS provide loans to the employer
company?
Yes. Loans to the employer company are a
permissible investment but are subject to a maximum
limit of 50% of the fund value. The loan must be
established on a commercial basis and take first
charge on a company asset.
Please contact us for more information.
Can shares be included in a SSAS?
There is also the option of purchasing shares on
and off the stock exchange. For shares not on a
recognised stock exchange there are certain Inland
Revenue requirement that need to be met.
Certain information will be required to proceed
with the purchase in unquoted shares.
Retirement Benefits
Once a decision has been made to
take benefits, the trustees will be called upon to
calculate the Inland Revenue maximum benefits to
which the member is entitled. A tax free lump sum
can be taken from the fund based upon the
member's share of the fund together with an annual
pension which can be taken directly from the fund
(this is known as an Unsecured Pension (USP) pre
age 75 and an Alternative Secured Pension
(ASP) post age 75), for the duration of the
members life.
The member can continue working
whilst drawing benefits from their scheme and can
defer taking benefits until reaching age 75.
Death Benefits - What happens is
a member dies before age 75?
Uncrystalised Funds
Basically, these are funds
whereby benefits have not yet commenced, i.e. the
scheme member has not yet received a tax-free lump
sum and/or commenced taking a pension.
The value of the member's fund
will be used to provide benefits for a member's
spouse, financial dependants, or other nominated
beneficiaries. The member would usually have
completed an 'Expression of Wish' or 'Death Benefit
Nomination' form which provides the Trustees with
guidance as to where you would like the death
benefits to go, however, they do have absolute
discretion. It is possible for a member to change a
nominated beneficiary at any time.
Death benefits will normally be
paid out in the form of a lump sum, but it is
possible for a pension to be provided for a
nominated spouse and/or financial dependant through
either an unsecured pension (pension fund
withdrawal) or by the purchase of a
lifetime annuity.
NB...Any lump sum payments made
as a result of the death of a member (pre-taking
benefits) are normally free of any Inheritance
Tax (IHT) based upon current legislation, but this
cannot be guaranteed indefinitely.
Crystalised Funds (Unsecured
Pension Funds [USP])
If a member dies whist receiving
an income through unsecured pension, then the
trustees will apply the value of any remaining fund
to provide benefits for a member's spouse, financial
dependants, or other nominated beneficiaries. The
member would usually have completed an 'Expression
of Wish' or 'Death Benefit Nomination' form which
provides the Trustees with guidance as to where you
would like the death benefits to go, however, they
do have absolute discretion. It is possible for a
member to change a nominated beneficiary at any
time.
The value of the member's
crystalised fund can be used to pay benefits in the
following forms:
- a lump sum, after the deduction of a 35% tax
charge, and/or
- used to provide a pension for a nominated
spouse and/or financial dependant through either
an unsecured pension (pension fund withdrawal)
or by the purchase of a lifetime annuity. There
is no 35% tax charge applied of the fund is all
used to provide an income for any
spouse/dependant
Crystalised Funds (Lifetime Annuity)
If death occurs after the purchase of an annuity,
then any benefits payable (if applicable) will be
determined by any guarantee period remaining and/or
spouse's/dependant's pension included at outset.
What happens if a member dies after age 75?
Alternatively Secured Pension
(ASP)
If death occurs whist the member
is in Alternatively Secured Pension, then the full
value of the ASP pension fund will be used to
provide benefits for a member's spouse, financial
dependants, or other nominated beneficiaries through
either the pension fund withdrawal facility or
through the purchase of an annuity. Again, the
trustees decide who the pension will be paid to, as
they have total discretion, but are guided by the
deceased member's death benefit nomination form (if
completed).
If any member upon death has not
left a surviving spouse or financial dependant, then
the value of any remaining fund can be paid by the
trustees to another family member or beneficiary.
This payment would be classed as an 'unauthorised
payment' and would therefore be subject to very high
tax charges, including Inheritance Tax (IHT). The
trustees will deduct all taxes, including IHT, and
send them onto HMRC before paying out any remaining
funds as death benefits. If any additional tax
charges are due, they would be paid by the
recipient of the remaining funds.
An alternative is to leave the
value of any remaining fund to a nominated charity
(the death benefit nomination form can be used to
nominate the charity). There would be no
'unauthorised payment' charge or Inheritance Tax
charge applied on this payment.
Annuity
If death occurs after the
purchase of an annuity, then any death benefits due
would be determined by any spouse's/financial
dependent's pension entitlements included at outset
along with any guarantee period remaining.
NB...As Alternatively Secured
Pension is a specialist area of financial advice,
then it is important that you speak to us about this
if it is something you are looking to consider as
you near age 75.
Summary
A SSAS is a flexible, tax efficient way of saving
for retirement. However they are heavily policed by
the Audit & Pensions Schemes Services of the Inland
Revenue. This being the case it is important to take
specialist advice prior to making any investment
decisions otherwise the tax exempt status of the
scheme can be withdrawn which will result in severe
tax implications.
At Ashton Hoyle, we can provide you with the
specialist advice you need.
NB...The favourable tax treatment currently
available for SSAS's might not continue in the
future. Whatever your financial advice requirements are,
you can be assured that Ashton Hoyle are well
positioned to provide an innovative answer and we
look forward to speaking to you on any financial
matter. Contact us now
to see how we can help. |
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