Small Self Administered Scheme

SSAS

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 advisor 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 debantures
• 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 £235,000 (in the 2008/2009 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 of 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 discression, 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 receipient 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 depenedant'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 SSASs might not continue in the future.