Your pension could save you a fortune

Exceptional advantages:

• For creating powerful business strategies to reduce tax liability
• For the tax efficient purchase of buy-to-let or other investment property
• For business owners looking to invest and grow profits without excessive tax risk
• For streamlined succession planning options for family businesses
• For planning growth strategies and opportunities for entrepreneurs
• For mitigating inheritance tax
• For protecting and passing on assets and wealth

Strategies using your pension, such as started a Small Self-Administered Scheme (SSAS) have been around since the 1970s and are governed by HMRC and The Pensions Regulator. Used and managed correctly, this is where your pension could save you a fortune. In addition, The Family Investment Company has become increasingly popular in the last decade, due to the enviable environment it creates for ensuring tax efficiency whilst still maintaining control. With the right support, these schemes can be coupled to create powerful, tax efficient strategies.

For successful company owners who are making a profit, the protection of that wealth is essential. However, it is also important to consider your IHT position, regardless of age, to both support your own lifetime tax strategy as well as reduce its impact should the worst happen.

The truth about pensions…

How often have you heard that pensions are boring? Outside of your control? Something to think about later? It is a common view, but for most business owners, taking control of your pension is a missed opportunity. We are here to straighten out the common misconceptions.

Fact: pensions can be the catalyst to the perfect strategy for investment, business growth, tax mitigation, and protecting family wealth, not to mention achieving your ideal retirement.

“The power of utilising your pension as a key element of your business and tax strategy has got even better!”

The SSAS is a much more flexible and powerful scheme than a traditional pension. Your pension could save you a fortune and this scheme can be started at any age, as long as you are a company director. With this ‘tool’, greater tax efficiency can be achieved both personally and for the business, as well as enhanced business and pension growth.

So let’s look at some examples of strategies that could be put into place, using your SSAS pension:

• Purchase your business premises via your SSAS
  • Charging rent to the trading company will bring down the year end profits (minimising Corporation Tax) whilst also growing the pension pot. In addition, the rent paid is classed by HMRC as an allowed business expense, again triggering tax benefits. Not only does this have advantages for the business and the pension but you become your own landlord!

• Combine your own pensions and pool with others
  • A SSAS can invite up to 11 members to join the scheme, which is exclusive to this type of pension. Additional members can transfer in their own funds, continuing to ‘own’ the same percentage of the pot as it grows. Each member nominates their own beneficiaries should the worst happen. The pot is increased and so investment power and growth are escalated.

• Purchase investment property
  • A key advantage of this type of pension is that a SSAS can invest directly into Commercial Property or development land. The property can be developed (for residential property it must be sold prior to becoming habitable as a SSAS cannot hold residential property), and commercial property can be rented out by the SSAS. Should the property be sold at a profit, there is no income tax to pay as pensions are not liable for income tax.

• Grow the fund simply with hands-off investments
  • For those without the luxury of time to spend on growing the pot, hands-off investments for enviable annual rates are a great option. This could include property loans, stocks and shares, gold and many other asset classes. Hands-off investments require minimal time investment and do not require knowledge of the legalities or extensive understanding of the underlying processes of investments, unlike developing commercial property yourself.

• Loan funds from your pension to your company
  • This is known as the ‘SSAS Loanback’. A SSAS is allowed to loan 50% of its total value to the trading company – a common strategy is to take advantage of this and use pension funds to grow the business. By doing so, you are avoiding the lengthy process of sourcing bank loans and all of the costs and time commitment it takes. The SSAS must charge interest on the loan of at least 1% above market base rate. For some, this means the opportunity to fund the business at a lower interest rate than a bank loan offers. However, an even better strategy for growth is to charge a higher rate for the loan, meaning that the SSAS growth is greater, but the company year end profit is reduced, lowering corporation tax. Again, the payment of the loan is classed as a business expense which means additional tax benefits. The loan must be paid in a maximum term of 5 years. At this point, your strategy could then start again, loaning 50% of the now increased pot to the company for another 5 years.

‘Whether looking to cashflow the company or grow the pension pot, the SSAS Loanback offers great flexibility and potential’

• Create a succession plan for your family business
  • A SSAS can facilitate much more flexible exit strategies for those wanting to retire on their own terms and timescales. By adding family members to the scheme, succession is simplified as the legalities, fees and taxes are avoided by all members already part of the pension, allowing assets and funds to be passed on and taken flexibly to suit the required succession plan.

• Reduce inheritance tax
  • A SSAS can reduce Inheritance Tax to as little as 0%. Children can be added to the scheme as beneficiaries, meaning they can be paid a lump sum upon death of the member, or can continue to be part of the scheme. Family can be added as SSAS members, meaning they already own the scheme assets. These assets are held outside of the estate, so are exempt from an inheritance tax burden.

The above are just a few examples of how taking control of your pension funds is a no-brainer for most business owners. Achieve control and flexibility like never before.