Many businesses start with a great idea and the entrepreneur’s focus is, quite frankly, on how they’re going to make money from that idea.

While they’re in the process of forming and incorporating their company, they will often purchase a property in their own name from which their business can trade. Eager to press on with the business, they do not necessarily take, or have, the time to review their business model. 

What is an SSAS and how could it help me?

Working with the entrepreneur’s accountant and/or financial adviser, one of the most attractive ways of maximising the value of commercial property held for the purposes of the business is the creation of a SSAS. A SSAS is a small, self- administered scheme or, put simply, a pension scheme established by companies for the benefit of its owner or senior employees (often the company directors or the business owner). A SSAS is a very flexible tool giving its members a good level of control. For example, a SSAS can buy and hold the business property for the company to occupy by way of a lease. In doing so, the property becomes an asset of the pension scheme whilst also being a liability for the business. As the lease rent is part of the operating costs for the business, its profitability is thus reduced, saving it from a higher corporation tax liability. The rental income, paid by the business to the SSAS under the terms of the lease, is not chargeable to income or corporation tax and is treated as a tax-free pension contributions for the beneficiaries of the SSAS, usually the owner, or owners, of the business and any senior directors participating in the scheme. That is a double win against tax.

More than just a tax saving and pension scheme

A SSAS isn’t just a tax saving and pension scheme, it can also lend money to its associated company, known as the sponsoring employer, on more preferential terms than most high street banks. The maximum sum that an SSAS can lend its sponsoring employer is 50% of the pension scheme’s total assets. So, for example, if a scheme has total assets of £500,000 it could, in theory, lend the company £250,000, money that could be used for purchasing new plant and machinery for the business, as well as more property. The founding directors can also transfer their existing pension assets, accumulated during their careers to date, into an SSAS which they can use as a cost-effective method to raise capital for their new venture without the need for external debt.

Finally, once a property is held within the SSAS it will not be liable for any capital gains tax on a future disposal. Inevitably, because it is an occupational pension scheme, some people worry about what happens when they die before they’ve withdrawn any funds. In most cases the full value of the SSAS can be paid to a nominated individual; if funds have already been drawn, then the balance will usually be paid to the surviving spouse or dependants.

SSAS should be part of an exit strategy

In summary, an SSAS is a good tax saving scheme, is a valuable source of capital, and a great way to enhance the business owner’s exit strategy. Any purchaser of the business is likely to take over the operating company’s lease, meaning that the lease rent will continue to be paid into the SSAS long after the beneficiary’s business sale and retirement. However, it must be borne in mind that every investor’s financial circumstances are unique and a SSAS should only be considered once specialist financial advice has been received from a qualified financial adviser and legal due diligence carried out by lawyers who are experienced in dealing with SSAS property investments.

About the author

Terry Dickson Partner

Terry is a real estate partner specialising in asset management; acquisitions and disposals for both investment and redevelopment purposes.