How to Build a Property Portfolio with a Pension
Firstly, you need to take an appropriate pension.
What is a SSAS Pension?
SSAS is a small self administered scheme and it is the ideal vehicle to build your property portfolio. Providing you are an actively trading Limited Company, you can establish a SSAS.
A SSAS can have more than one member - up to 11, in fact. You have the opportunity, with multiple members, to pool your funds. This could be as simple as a husband and wife, who have a Company and are both Directors, pooling their funds.
This gives you access to two debts of pension contribution allowances. The yearly pension contribution allowance per person is £60,000. Find out how much can be put into a SSAS.
If you are allowed to do the carry forward reliefs, because you’ve got unused pension allowances from the last three complete tax years, then potentially you could be looking at a contribution for each member of up to £200,000.
Building Your Property Portfolio with Expert Support
As you can see, you can make sizable contributions into SSAS, subject to the normal restrictions. If you want to discuss restrictions and contribution allowances, please give us a call and we will take you through it.
If you have pension funds elsewhere, these can be transferred into the SSAS. Again, speak to us about what can and can't be transferred. If you need advice, we can refer you to an independent financial advisor who can provide you with suitable financial advice with regards to a pension transfer.
Why You Should Purchase Property Through SSAS
There are many tax benefits to purchasing property through SSAS. By holding property inside SSAS you are putting your money into a fantastic tax-free zone. Here are some of the tax advantages of building a property portfolio inside a SSAS:
- You will receive Corporation Tax relief
- You will receive personal tax relief on personal contributions
- If you have commercial property inside your SSAS, there is no tax on rent
- Buy and sell property, making gains on that value without being taxed
- No Capital Gains Tax
- No Inheritance Tax
Holding commercial property inside a SSAS means you will have rent coming in regularly, providing a reliable income source for your retirement. So, SSAS is the ideal vehicle if you want to build a commercial property portfolio that supports you financially for the long term.
Borrowing Money from a SSAS
In addition to the contributions and transfers that you can add into the SSAS, SSAS is allowed to borrow money. A SSAS can borrow up to 50% of the net scheme assets. So, as an example, if you had a combined pool of £1,000,000 then the SSAS would be able to borrow up to £500,000.
An Example of SSAS Borrowing
Money
It could be that you see a commercial property that is £700,000 in value. What you could then do is put £200,000 in and the SSAS could put £200,000 down. As the deposit, you borrow the other £500,000. So, you have leveraged up the value of the property considerably.
Rent Payments
Hopefully you secure a nice tenant. The tenant is paying a good level of rent. Rent is coming into the SSAS totally tax free and that money can be used to pay the debt. When you do the comparisons of say, taking a mortgage out in a Company where you only get limited tax relief, the tax relief is limited to the interest only, not the capital repayments.
Tax
This is compared to a SSAS, where the rent that is coming in is gross paid. So, there is no tax on the rent coming in. If you do the figures, it’s actually possible to see that you can accelerate the repayment of the debt much faster because you’re not having to pay tax on the rent coming in. This is an opportunity to reduce your debt costs very quickly.
So, you can see you can leverage your pension up and put a property in and really start to build this together. Clearly, with rent coming in, this starts to again build the value of your pension scheme.
Contributions
You can add more contributions and possibly even bring in a third or a fourth person. Perhaps your family is working in the business. Can you make contributions for them? Then the opportunity may build again. Can you move on and buy a second and possibly even a third commercial property inside your pension scheme? It depends on the price of the property, the value of your SSAS, and the leverage position available, which as I said is 50% of the net scheme.
Can You Trade Inside a SSAS Pension?
It’s important to be aware that you cannot trade inside a SSAS. However, if you are looking to build a long-term portfolio that provides the above benefits for your retirement, then SSAS is the perfect vehicle in which to do it.
Open a SSAS Today
As you can see, SSAS offers quite an exciting opportunity. With all the incumbent tax benefits that are built around SSAS, you can see why you may want to start building your commercial property portfolio inside SSAS for your long-term benefit and financial security.
Visit our SSAS Video Hub to learn more
Get in touch with us to discuss opening a SSAS and start building your property portfolio today.
