What is a SSAS?

A Small Self Administered Scheme (SSAS) is an occupational pension scheme that gives its members and Trustees lots of flexibility and control over what it invests in.  A bit of technical speak: It is a specific form of trust which complies with the Finance Act 2004 and is registered with HM Revenue Customs & Excise (HMRC) as a registered pension scheme.

A SSAS is set up on a “money purchase basis” which means that the money members get out of the scheme when they retire depends on how much money is paid in for them and how their investments perform.

The scheme can have up to 12 members and they are most likely to be directors, family or key employees of a company – which is known as the ‘sponsoring employer’. Members must be over the age of 18 and for our schemes, all members are also Trustees.

The Sponsoring Employer is the company who pays the contributions to the scheme for its employees. Contributions can be varied in line with its profits and there is no commitment to pay any level of contributions so no profit one year = no contributions have to be made.

Any contributions made to the scheme are tax relievable which means they are deducted from the company profits when calculating its corporation tax bill. Contributions can be made regularly, as one off’s or a combination of both. In-specie contributions can also be made so say the company owns its trading premises, it can transfer part of the building into the scheme and it can be treated as a contribution.

There is a maximum level of contributions that can be made for members and the level will vary depending on each member’s circumstances. We always check this out once we have details about each member.

An employer can have more than 1 SSAS and we insist that the company is active and trading.

The benefit of a SSAS is that it isn’t tied to a particular provider so it can be moved to another provider if you are not happy the service you receive. The same goes for our SSAS’s, if you are unhappy with our service, you are able to choose another provider to deal with your scheme.

We do not charge for you to move (to us or away from us), that’s how confident we are that you will be happy with our service. Any member can also transfer their share of the scheme to another pension scheme if they no longer want to be part of the scheme. The scheme can also be wound up once all members have been transferred out.

How does a SSAS work?

Formal documents are required to set up the scheme which the Sponsoring Employer and member trustees will need to sign. We provide all of this for you once you have completed our application form and when the documents have been returned, we register the scheme with HMRC.

HMRC will then look at the application and once they are satisfied that the scheme is legitimate; they “approve” the scheme and send us a certificate saying so.  The scheme is then ready to go!

The SSAS will have its own bank account as it is kept completely separate from any funds held for the employer. The money in this account can then be invested and grows and any further contributions etc are paid into this account. Any investments the scheme members decide to make are made from this account.

Each member has their own share of the scheme called “share of fund”. So, for example, a scheme has 2 members being Lola and Josie. They run an online fashion store and set up a SSAS but Lola works part time and Josie works full time. Lola has a contribution of £40,000 paid for her and Josie has £60,000. The split of the scheme is therefore 40% to Josie and 60% to Lola. Lola receives 40% of the interest in the bank account etc and Josie receives 60%. This is because Josie has the larger share of fund.

What can the scheme invest in?

As we have said previously, a SSAS is truly flexible and gives members lots of freedom to choose investments which they find interesting to them. So let’s have a look at what can be done with the funds once they are in the scheme:

– It can buy commercial property (which can be leased back to your business) and Land

– It can lend money to the Sponsoring Employer

– It can invest in stocks and shares on both the UK and recognised overseas stock exchange

– It can buy unit trusts, bonds, OEIC’s and gold bullion

– It can buy shares in the sponsoring employer

– Money can be lent to the scheme to help buy something fancy for example, an office block

• It can keep funds in cash – fixed term deposits are popular as they pay higher rates of interest

We like to make sure clients have the full picture of what a SSAS can and can’t do. A few examples are listed below of what the scheme can’t do (well it can do them but you will be penalised with extortionate tax fines which basically make them pointless):

– Residential property unless it is employment related. So a shop with a flat above is ok as long as the flat is leased to the shop manager as a condition of his employment

– It cannot lend money to scheme members or people connected to members

– It cannot buy single hotel rooms

– It cannot buy any item of tangible moveable property – basically anything you can move or touch for example cases of fine wine, a selection of vintage cheeses, a race horse or cars

– Personal chattels

Please remember though, these lists are not definitive. If you’ve got something specific in mind that you would like to do, give us a call or drop us an email and we will take a look at it for you.

Tell me about how I lend money back to the sponsoring employer?

Ok, this is called a Loanback and one of the most used facilities available under a SSAS. If you want a quick overview, carry on reading. We also have a more comprehensive guide available here if you want to fully check out the facts but we will summarise the key points now.

A Loanback can be made but it must match 5 criteria to be acceptable to HMRC and these are:

– The maximum loan that can be made is 50% of the value of the SSAS less any existing loans. All loans must be made for genuine reasons of assisting the trade of the borrower

– It has to be repaid within 5 years

– The company must pay back both capital and interest on an annual basis at least. We prefer quarterly repayments and your Loanback repayments will be invoiced on this basis

– The Loanback interest rate must be 1% above the average high street bank base rate. The loan interest is allowable as a business expense for tax purposes and is paid back into the scheme

– Loans must be secured against a first charge. You can use various items as security and commercial property or residential property can be used

We provide all of the paperwork needed to do a Loanback and take all of this in hand for you. You can choose your own solicitor or legal adviser to place the charge upon the security; we do not force you to use any particular company.

The SSAS can also loan to unconnected third party companies where a sound investment proposal exists and it may not need to be secured.

And how do I purchase a commercial property?

So if you decide you want your SSAS to buy a commercial property, this has quite a few advantages. For example, the SSAS can buy premises from your company which can then be leased back to the company.

Here are some advantages of buying a commercial property:

– If purchased from your company, it can inject cash flow back into the business

– Tax relief is received on any contributions used to purchase the property

– Costs and fees to buy the property are payable from the SSAS

– The property is protected from creditors in the event of insolvency

– Growth in the value of the property when sold is free of Capital Gains Tax

– Rent paid by tenants provides a regular income which is free from Income Tax

– Rent is an allowable business expense if the premises are used for the member’s own business

Don’t forget, the SSAS can borrow up to 50% of its value (less other loans of course) to help fund the purchase if it is short of cash.

The SSAS can also register for VAT meaning that VAT can be reclaimed on the purchase price!

If you want to know more about buying a commercial property, click here and we will take you to a more comprehensive guide.

OK…so when I retire, how do I get my pension ?

This topic is very worthy of a guide all of its own so please click here to get it!