Submitted by Sestini & Co
| on Sat, 03/03/2018 - 16:35 | In Pensions
, Tax planning and pensions
If you’re a Director or owner of a small business looking for extra funding, you could consider using your pension savings rather than borrowing from the bank. Pension savings may offer a more tax efficient option and it can sometimes be a difficult and lengthy process to access credit from a bank.
Although it’s become more difficult to use a self-invested personal pension (SIPP) to fund business transactions over the past 15 years, the rules for small self-administered schemes (SSAS) do allow for greater flexibility.
Around £100 billion is saved into SIPP plans but the amount saved into SSAS arrangements is far less.
What is a SSAS?
An SSAS is an occupational pension scheme rather than a personal pension plan, like a SIPP. They are primarily aimed at Directors and senior employees of Limited companies and their families, allowing up to 11 Members.
Unlike a SIPP, SSAS Members have the ability lend up to 50% of the NET funds in the pension to its sponsoring company. While there are conditions to this lending (to meet HMRC criteria), many SSAS members feel this is preferable to bank lending, as they reap the benefits of both the lender and borrower.
Key amongst HMRC’s criteria are:
- The loan must be secured, whether with business premises, or another quantifiable asset.
- Loans from a SSAS must not exceed more than 50% of the NET fund value for the scheme.
- The maximum term must not be longer than five years.
- The rate of interest should be comparable to that of commercial lending.
Financial benefits of SSAS lending
It’s easy to set up a SSAS and transfer existing pension savings to it, and loan repayments and their interest are made to the SSAS, increasing its value.
At the same time, company contributions made to a SSAS qualify for tax relief at basic and higher rates and the interest payable on borrowing is tax deductible from the company’s profits.
Of course, there’s no “one size fits all” approach with a SSAS – they can be adapted to suit your needs and evolve as your business grows.
Pension legislation has changed so much in recent years and pensions, particularly SSAS, can offer a vast range of benefits, so if you want to maintain a profitable business while growing your retirement fund, then SSAS is definitely something worth looking into.
How can we help?
At Sestini & Co Pension Trustees Ltd we provide bespoke pension administration services to support those who wish to take control of their retirement plans and act as Professional Trustees for SSAS schemes.
Get in touch
Telephone: 01761 252520
Find out more, download our brochure .
Ready to apply? Click here to complete our application form.