Yes, absolutely. You can use SSAS funds to pay off the commercial mortgage for your Company. Here’s how it works.
SSAS Pension Property Purchase: How it Works
A SSAS is a scheme set up by a Limited Company, usually by the Company Directors. Let’s say we put the two Directors into the SSAS and they are a husband and wife team. What the SSAS can do, once it’s established, is apply for transfers from existing pension schemes.
Transferring Pensions to SSAS
If you have a SIPP, NEST or other personal pension we can arrange to have these transferred into your SSAS pension. Find out more about transferring existing pensions to SSAS.
Let’s assume for the purpose of this example that those transfers add up to £50,000 each. Now we’ve got £100,000 in the pension scheme.
If we then look at the position of the Company, the Company owns and has on the balance sheet a commercial property. Let’s say that commercial property is worth £300,000 and has a mortgage of £90,000 on it. The Company may not be able to make any contributions, so you could make a partial purchase of the commercial property.
Can a SSAS Purchase a Percentage of Commercial Property?
SSAS Pension Property Purchase
To purchase the property, we’d have it surveyed by a chartered surveyor who will give us an evaluation, as well as a rental assessment of the property.
So, we’ve got £100,000 in the pension fund that we’re going to use to pay for one third of the property. Inside the pension scheme two thirds of the property is still owned by the Limited Company.
£90,000 will settle the outstanding debts to the bank and any surplus will be returned to the Limited Company. That is how you eliminate the commercial debt.
Commercial Property Rent Payments
The Limited Company now has to pay one third of the rental assessment. So, let’s assume the rental assessment was £60,000 then the Company would need to pay rent to the SSAS of £20,000. This saves corporation tax as the rent being paid by the Company to your SSAS is a tax deductible expense.
Furthermore, as the rent flows into and remains in the SSAS, the income is tax free. This means that your SSAS grows every month tax free while saving your Company thousands of pounds of corporation tax at the same time.
Also, SSAS receives the income free from tax. This means the property is mortgage free. So, you now have one third of the property's value inside SSAS whilst adding £20,000 each year in the form of Company rental payments, thereby growing the SSAS.
Property Investment: Limited Company vs SSAS Pension
SSAS Pension Contributions
If we roll this forward a little bit, what could happen in future years is the Company could decide to make corporation contributions to the SSAS for the Directors. Let’s say these contributions add a further £50,000 for each Director. So, it gets a little bit busy. The pension could then agree to buy another third value of the Company property again, allowing the money to eventually flow back into the Company.
If you’re really smart, when the money comes back you could use it to make another contribution for the Directors. So, you can spin the same money around two or three times to purchase the property if it’s held in your Company.
Completing the SSAS Pension Property Purchase
So, you’ve got rid of the mortgage debt on the first transaction, then on the second and possibly third transactions, you can buy the remainder of the property using the same £100,000. Don’t forget, in these instances the cash always ends up back in your Company as the SSAS buys assets from it - taking it from a taxed environment, to a tax free environment.
How to Build a Property Portfolio with a Pension
As you can see, this is a fantastic way of clearing debt and moving a property out of a Company. It can also typically save you around £25,000 in corporation tax. So, it is a great way of obtaining tax relief on assets you already own.
Speak to a Member of Our Team
If you’d like to discuss paying off a commercial mortgage using SSAS, book a call to speak with a member of our team.
