Many company directors are eligible to use their former employer or private pension funds as a source of cash to fund their current business, yet very few are aware that this is an option. This is achieved by using the little known business SSAS pension.
If you are a company director and you have contributed to personal or workplace pensions in the past, then a business SSAS pension is an extremely valuable tool for funding your business, quite possibly more so, given the current economic outlook.
The business SSAS pension is designed specifically for business owners, giving them control and flexibility over their pension funds. This includes the ability to transfer cash from your former work/private pensions directly into your company bank account. This is achieved by what is known as a ‘loanback’ facility, where the funds transferred from your pension to your company are considered a loan. By doing this, not only are you providing cash-flow for your business, but you are also benefitting from what is essentially a 0% APR loan. This is because the money in the pension is yours in the first place so any interest due by your company is payable to your own pension.
How does that work?
A business SSAS pension is allowed, within HMRC rules, to loan 50% of its value to your company and, one of the great benefits of a business SSAS pension loanback is that you, as trustee of your own pension, set the interest rate, as per HMRC rules. The interest rate must be at least 1% above the average base lending rate of leading high street banks, but there is no specified upper limit of interest. You may wish to pay minimal interest, just taking advantage of the ability to provide cash-flow. However, as the interest you pay is being paid into your own pension, you might choose to increase the rate of interest, therefore reducing profitability within the company. By doing so, the company pays less corporation tax and the value of the business pension increases.
Example of how this works:
You make a loan of £100,000 from your new business SSAS pension and funds are paid to your business.
- You set the interest rate at 12% p.a.
- At the end of year 1 the interest due would be £12,000.
- This would be paid back into the pension from the company as tax deductible loan interest.
- By doing this you would have saved your company £2280 corporation tax.
- 20% of the capital is due to be repaid each year, up to a maximum term of 5 years.
- The cash transferred to the company can be used for any purpose.
So, as you can see, you have reduced the tax your company pays and built up your pension.
What else does the business SSAS offer to me and my business?
The business SSAS pension benefits from the same advantages as more traditional pension schemes, for example; a tax free lump sum after you turn age 55, no income tax on permitted investments and no capital gains tax on the disposal of investment, However, the SSAS has much increased flexibility and control, which means major benefits to business owners, such as:
- The ability to invest in property and land
- The option to purchase shares in your company
- A broader range of alternative assets classes
- The potential to make investment in other unconnected businesses
- A SSAS may be more cost effective than a SIPP
The Landlord’s Pension work with company directors to ensure they have the knowledge and the tools to create a business SSAS pension which will fully support their business goals.
Every business and client we work with has a unique set of circumstances and our role is to fully understand your current position and what you are looking to achieve. Togother, we are then able to put together a robust plan that supports your goals, strategies and desired outcomes.
The next step is to arrange a consultation with one of our experienced business pension consultants who will be able to answer any questions you may have and explain how a SSAS pension could be implemented within your business. We look forward to working with you.