A SSAS is a Small Self Administered Scheme, a special type of UK registered pension scheme. Each SSAS is separately registered with HMRC and is governed by a trust deed and rules as a separate legal entity to the sponsoring employer. The sponsoring employer establishes the SSAS and invites members to join. Any individual employed by the sponsoring employer (or a participating employer) may join the scheme. The members are all appointed as trustees.
Establishment of a SSAS gives the following potential advantages:
Contributions paid by the company are usually deductible from pre-tax profits effectively reducing the company’s corporation tax liability. Any personal contributions paid by the members are relievable against income tax at the members highest marginal rate, subject to the maximum annual allowance.
A loan from the scheme to the sponsoring employer is allowable, however they are subject to the following conditions. The loan should not exceed 50% of the net market value of the scheme’s assets. The loan must be secured by way of a first legal charge over fixed assets, with a value at least equivalent to the amount of the loan plus all interest due over the term. The term of the loan should be for no longer than five years. Interest must be charged at the market rate, and cannot be below 1% above Bank Base Rate, rounded up to the nearest quarter percent. Loans may not be made to members of the scheme or anyone connected to a member.
The trustees of a SSAS can invest in a broad range of investments and enjoy tax free growth, some examples being:
*Shareholding in the sponsoring employer must be less than 5% of scheme assets. Shares may also be bought in more than one sponsoring employer as long as the total holdings are less than 20% and shares in any one sponsoring employer are less than 5% of scheme assets.
If investments are made in taxable property, unauthorised payment tax charges will apply on the amount of the investment, any income from them and profits on disposal. Taxable property means investment in residential property and tangible moveable property, e.g. fine wines, vintage cars, plant and machinery etc.
A SSAS may borrow to invest and to provide a member’s benefit which has become payable. The maximum amount that can be borrowed is 50% of the net asset value of the scheme.
Schemes with less than 12 members and where all decisions are made unanimously or have an independent trustee, are exempt from the trustees’ knowledge and understanding requirements of the Pensions Act 2004 and the member-nominated trustee requirements. If every member of the scheme is a trustee, the scheme will also be exempt from the Internal Disputes Resolution Procedure requirements.