SSAS Examples
A Couple of Real Life Examples of SSAS at Work
We had a couple of cases not too long ago which worked beautifully and effectively demonstrate the benefits of SSAS
Example One: Purchasing Commercial Property
A firm of Chartered Accountants realised that a client had a commercial property on the balance sheet and that they hadn’t been making use of their pension contributions for a number of years. This is not uncommon amongst Company Directors.
They introduced the Directors to us and we established that we could set up a SSAS on their behalf, enabling the Company to make contributions for both of the Directors.
The property the Company had bought was relatively cheap in terms of commercial property at £200,000. By being held on the balance sheet of the Company it was exposed to creditors. Moving to a SSAS would enable them to mitigate this risk.
Setting Up the SSAS on Behalf of the Client
We set up a SSAS and the Company arranged to make £200,000 contributions
Using both Directors current and previous annual tax free allowances.
Arranging a Property Valuation and Conveyancing
Once the funds were held in the SSAS we arranged a valuation, a solicitor to handle the conveyancing, and for the SSAS to purchase the property from the Company. The Company had paid in £200,000 to the SSAS which attracted £50,000 worth of Corporation Tax deduction. A very attractive saving.
Using the SSAS to Purchased the Property Off the Company
We then used the SSAS funds to purchase the property from the Company. In effect, the £200,000 flowed back to the Company and back onto the balance sheet. So, in terms of the cashflow, the Company was not out of funds for too long and had achieved a significant Corporation Tax reduction that protected the property from creditors and created an asset for the SSAS with potential for value growth.
Setting Up a Lease Agreement Between the SSAS and the Company
In addition, we created a lease agreement between the SSAS and the Company so that the company could pay rent to the SSAS of £20,000 per year. This gave the Company another tax deductible expense to reduce their profits and tax and add growth funds to their SSAS.
Savings Made
The company was able to save 25% of the annual rent which was £20,000 and was now coming into their SSAS gross with no tax. Based on a £200,000 contribution with £20,000 additional income, they had immediately achieved a very healthy 10% return on the capital invested.
If they did nothing else and made no further annual contributions to the SSAS over the next ten years there would still be a £200,000 property with £20,000 rent per annum. At the end of ten years the SSAS would be worth at the very minimum £400,000 and that’s assuming no growth in the value of the property. All tax free.
Second Example: Building Up Retirement Funds
Another firm of Chartered Accountants realised their clients had a commercial property held on the balance sheet but they had a loan on that property from the bank against the original purchase of the property.
The Company was doing well and making good profits. The accountant was keen to help the Directors reduce the taxable profits in the Company to control the Corporation Tax but also to support the Directors in putting more aside for their retirement.
Setting Up a SSAS and Organising Contributions
We set them up with a SSAS. Not only were they able to put in £200,000 worth of pension contributions but one of the members also transferred an existing pension which was worth around £100,000. They now had £300,000 of funds sitting in the SSAS.
Arranging a Property Valuation
Once that was in place, we arranged; a valuation on the property, a solicitor to carry out the conveyance and as part of their conveyance they obtained the settlement figures on the bank loan.
SSAS Purchases the Property
The SSAS arranged to purchase the property from the Company and in the process settled the bank debt. The property moved into the SSAS with no debt. This saved the Company paying money to the bank in high interest costs and the capital repayments out of taxable profits as well.
Drawing Up a Lease
A lease was drawn up between the Company, who were the tenant, and the SSAS. Instead of paying the bank a monthly amount, they were now paying the SSAS a monthly rent. The rent coming into the SSAS was paid gross without tax benefitting them rather than the bank.
The Results
The clients were happy that not only had they achieved tax relief on the contributions they made to the SSAS, but the cash that had gone into the SSAS had effectively come back to them when the property was bought and they had effective tax deductibility going forward.
The client now has an asset growing tax free inside their SSAS thereby securing funds for their future.
