Graham and Tracy were successful joint shareholders at a business based in Telford. They were referred to us for advice relating to setting up a Work Place pension.
They had an old pension scheme with an insurance company who were not able to change its rules to become a qualifying scheme. We helped guide them through the process of how to advise the employees of the changes about to take place and set up a new scheme that fulfilled their statutory obligations.
During our conversations it was mentioned that they had their own personal pensions worth around £80,000, they asked whether they should continue with them. After asking a few additional questions it became apparent that they would like to reduce the amount of Corporation Tax that they paid and if possible purchase their own premises on one of the local Business Parks with an asking price of £600,000.
I mentioned to them that they could move their pensions to a small self-administered pension scheme (SSAS) and utilise their annual pension allowance of £40,000 each. They could also use Carry Forward of unused pension allowances from the previous 3 years meaning total contributions could be made to £180,000 each. Subject to the wholly and exclusively rule, the contributions would be treated as a trading expense which would save the company £36,000 in Corporation Tax.
With the £80,000 they already had, they would now have a fund of £440,000. An SSAS is able to borrow up to 50% of the schemes net assets, in this case providing an additional £220,000 if needed therefore an asking price of £600,000 was well within their means and provided extra in order to make some alterations and modernise the premises.
The company would make future rent payments to the SSAS, which would be another deductible expense for the company, the SSAS would receive the rent gross with no additional tax liability and if they sold the premises in the future any gains would be capital tax-free. The income received would then be used to service the loan and once repaid would boost the retirement fund.
The purpose of this case study is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. All statements concerning the tax treatment of products and their benefits are based upon our understanding of current tax law and HMRC practices both of which are subject to change in the future. Levels and bases of reliefs from taxation are also subject to change, and are dependent on your individual circumstances. Tax planning and Small Self-Administered Pension Schemes are not regulated by the Financial Conduct Authority. Auto Enrolment advice to employers is not regulated by the Financial Conduct Authority.