Does a SSAS Pay Inheritance Tax?

SSAS Pension Inheritance Tax: What You Need to Know

When it comes to planning for the future, there is a lot to consider. One of the best things you can do is understand how your pension can serve not just as a retirement fund but as a source of income and financial security for your family.

Let’s discuss SSAS pensions and Inheritance Tax in more detail and uncover why SSAS is the best wealth cascade vehicle available for Limited Company Directors and their beneficiaries.

What is a SSAS Pension?

Firstly, we should start by answering the question: what is a SSAS? A SSAS pension is a pension scheme designed for small businesses. It is typically utilised by Company Directors to save for retirement and plan for the future. When you are contributing to a SSAS, you’re not just saving for retirement, you are building your financial legacy.

Of course, what makes SSAS such an excellent investment tool for business owners and their beneficiaries is that the funds and assets within SSAS are not subject to; capital gains tax, are corporation tax-deductible, and are not liable for Inheritance Tax until April 2027. 

This makes SSAS a hugely attractive option for anyone hoping to secure their retirement and their family’s financial future.

Discover more benefits of SSAS

What is Inheritance Tax?

Inheritance Tax is tax (charged at 40%) that is payable on the estate of someone who has died. An estate can include: property, money, and possessions.

According to Gov.uk, “there is normally no Inheritance Tax to pay if either: 

• The value of your estate is below the £325,000 threshold
• You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club.”

Who Pays Inheritance Tax?

Inheritance Tax payments are made using funds from your estate. Your beneficiaries do not typically pay tax on what they inherit. However, they may have taxes to pay on things related to that inheritance, such as the rental income they receive from a property that was left to them in a will, for example.

Who Does Not Pay Inheritance Tax?

You do not pay inheritance tax on gifts you give to your spouse or civil partner. You can give a spouse or partner as much as you like while you’re alive, as long as they are permanently living in the UK and are in a civil partnership or legally married to you. There is also no Inheritance Tax to pay on gifts you give to charities or political parties. 

Until 2027, SSAS pension Inheritance Tax is not payable on assets. Until that time, you can cascade your wealth down to future generations completely tax free.

Is Inheritance Tax Payable on Gifts?

Your beneficiaries may be required to pay Inheritance Tax on gifts they receive after your death. These gifts can include: houses, money, land, buildings, stocks and shares listed on the Stock Exchanges, household and personal goods, and unlisted shares you held for less than 2 years before your death. 

Factors that impact whether you need to pay Inheritance Tax on gifts include:

• When the gift was given
• The gift’s value
• Who the recipient is and their relationship to you 

Anything left to your beneficiaries in your will is not considered a gift. It is counted as part of your estate and the value of your estate will be used to work out whether Inheritance Tax needs to be paid or not.

SSAS Pension Inheritance Tax: Does SSAS Pay IHT?

The main purpose of a SSAS is for its Members to build up a store of wealth for their retirement. Until 2027, moving your assets out of your business or personal name into your SSAS could save you up to 40% on the value of those assets.

The new budget has announced that Inheritance Tax will be payable from April 6th 2027 at the standard rate of 40%. This impacts everyone, including those whose assets are held inside SSAS.

For SSAS pension Inheritance Tax solutions and alternatives, book a call with a member of our team. We would be happy to answer your questions and provide more information. 

Should I Be Worried About Inheritance Tax Changes?

Since the government’s budget announcement that Inheritance Tax will be payable in 2027, many people are worried about how the changes will affect them. However, the average life expectancy for males in the UK is 82. By the time many will reach that age, a government may well have changed or reversed this provision. 

Over the years, there have been many changes to tax rules and we continue to firmly believe that SSAS is the best tool in UK finance to both protect and preserve your wealth.

20 Ways You Can Pay Less Inheritance Tax

Inheritance tax (IHT) can significantly impact the assets passed on to your beneficiaries. While avoiding taxes outright is not advisable or legal, there are legitimate and strategic ways to minimize the burden under new inheritance tax rules. Here are some strategies:

1. Use Tax-Free Allowances and Reliefs

• Annual Gift Allowance: You can give up to a specified amount each tax year (e.g., £3,000 per person in the UK) without it being included in your estate.
• Small Gifts Exemption: Make multiple small gifts under the threshold allowed by your local tax rules.
• Wedding or Civil Partnership Gifts: Give tax-free gifts to children, grandchildren, or others for their weddings or partnerships.

2. Take Advantage of Exempt Transfers

• Spouse or Civil Partner Transfers: Assets left to your spouse or civil partner are typically exempt from IHT.
• Charitable Donations: Gifts to registered charities are IHT-exempt and can reduce your overall tax rate if a certain percentage of your estate is donated.

3. Establish Trusts

• Discretionary Trusts: Move assets into a trust to remove them from your estate while retaining some control over their distribution.
• Bare Trusts: These pass assets to beneficiaries immediately, reducing the value of your estate.
• Loan Trusts and Discounted Gift Trusts: Provide a tax-efficient way to make gifts while retaining some access to income or capital.
• Important note: there is a 7-year run-off rule that limits withdrawals to £325,000. Charges apply after this point.

4. Make Lifetime Gifts

• Potentially Exempt Transfers (PETs): Gifts made during your lifetime may become tax-free if you survive for a specified period (e.g., 7 years in the UK).
• Taper Relief: Even if you don’t survive the full 7 years, taper relief reduces the tax liability on gifts after 3 years.
• Regular Gifts from Income: You can make tax-free gifts from surplus income, provided they do not affect your standard of living.

5. Invest in Tax-Efficient Assets

• Business Relief (BR) Investments: Certain business assets, such as shares in qualifying businesses, can be exempt from IHT after a set period (e.g., 2 years in the UK).
• Agricultural Relief: Investments in farmland or forestry may qualify for relief.
• Enterprise Investment Schemes (EIS): Investments in EIS-qualifying companies can provide IHT relief after two years.

6. Consider Life Insurance

• Cover Your IHT Liability: Take out a life insurance policy to cover your IHT bill and place the policy in a trust to ensure the payout is not part of your estate.

7. Downsize or Spend Wealth

• Downsize Your Property: Move to a smaller home or a less expensive area, using the proceeds to reduce your estate's value.
• Spend Wealth During Lifetime: Reduce your estate by spending on experiences, gifts, or charitable contributions.

8. Use Nil Rate Band and Residence Nil Rate Band

• Nil Rate Band (NRB): Optimize the use of your standard IHT-free allowance.
• Residence Nil Rate Band (RNRB): If applicable, ensure your home is passed to direct descendants to benefit from additional exemptions.

9. Plan Cross-Border Assets

• Check Double Tax Treaties: If you hold assets in multiple countries, leverage treaties to avoid double taxation.
• Use Offshore Trusts: In some jurisdictions, offshore trusts may provide tax advantages, but they must comply with local laws.

10. Regularly Review Your Estate Plan

• Stay Informed: Tax rules change frequently, so ensure your estate plan is updated to reflect new laws.
• Consult Professionals: Work with estate planners, tax advisors, and solicitors to ensure your strategy is effective and compliant. 

11. Family Investment Companies (FICs)

• What It Is: Create a Family Investment Company to hold assets. Shares can be passed to family members incrementally, potentially avoiding IHT.
• Advantages: You retain control over assets while shifting ownership for tax efficiency.

12. Gifting Larger Sums with Conditions

• Loan Arrangements: Instead of outright gifts, structure contributions as interest-free loans to family members. The loan is not taxable but reduces your estate’s taxable value.
• Gift with Reservation of Benefit: Be cautious when gifting property while retaining use, as this can trigger IHT unless properly structured.

13. Pension Planning

• Keep Funds in a Pension: Pension funds are outside your estate for IHT purposes until April 2027. Use other savings or investments first for living expenses to preserve tax-efficient pensions for beneficiaries.
• Nominate Beneficiaries: Ensure your pension is written in trust or properly assigned to beneficiaries to avoid unnecessary tax complications.

14. Use Investment Bonds

• Offshore Bonds: Invest in offshore bonds, which allow you to grow wealth tax-deferred. These can often be transferred to beneficiaries with reduced tax implications.
• Assign Segments: Assign parts of the bond to family members, spreading any potential tax liabilities.

15. Defer Asset Transfers

• Leverage Trusts for Post-Death Planning: Set up trusts that allow for more flexible asset distribution based on future circumstances.
• Wait for Beneficiary Changes: If new laws favour younger generations or charitable donations, you might adjust your plans accordingly.

16. Maximize Use of Capital Gains Tax (CGT) Rules

• Strategic Asset Disposal: Sell or gift assets that have appreciated in value while alive to utilize annual CGT exemptions. This reduces the IHT value of your estate.
• Asset Reallocation: Convert assets subject to IHT into assets more favourably treated under CGT or excluded from IHT.

17. Pass Down Life Interests in Property

• Life Interest Trusts: Pass property or other assets into a trust where beneficiaries can enjoy the income or use but not own the principal. This keeps the principal out of their estates for tax purposes.

18. Prepay Funeral Costs

• Set Aside Funds: Prepay funeral expenses or create a designated account for this purpose. These funds won’t be included in the estate valuation for IHT.

19. Equity Release

• Use Property Value: Equity release schemes allow you to unlock property value while reducing your taxable estate. Released funds can be spent, gifted, or used to fund trusts.
• Ensure Compliance: Work with advisors to structure equity release programs that fit your long-term estate planning goals.

20. Create a Charitable Foundation

• Family-Controlled Charity: Establish a charitable foundation or donor-advised fund to receive significant parts of your estate. This supports causes you care about and ensures tax relief.

All of the above are options you might consider. However, we would strongly recommend that you seek advice before making a decision. Book a call with a member of our team to discuss your options. We’d be happy to help.

Find Out How IHT Changes Affect You

We understand that the upcoming SSAS pension Inheritance Tax changes will be weighing on your mind, whether you have a SSAS or are considering opening a SSAS with us. Despite the changes to Inheritance Tax rules coming in 2027, SSAS remains the best pension scheme for Directors of Limited Companies.

For more information about SSAS and its many benefits, check out our SSAS Video Hub, or book a call to speak with a member of our team. We’re here to help you protect your assets now and in the future.