SSAS Case Study: Residential Property Development

How To Develop Residential Property With A SSAS

An Innovative And Tax Efficient Method Of Using A SSAS To Fund The Conversion Of A Commercial Property Into Residential Property

Dave runs a property company that develops and invests in residential property. 

He has a SIPP that’s mainly invested in stockmarket assets.  Its other asset is a small commercial property.

Dave has obtained planning permission to convert the commercial property into residential property.  It should be a profitable exercise, but he needs money to complete the conversion. 

As a pension scheme can’t hold residential property without incurring a substantial tax charge from HMRC, it needs to be removed before it’s suitable for use as a home.

Dave establishes a SSAS for his company.  He transfers into the SSAS the assets in his SIPP, including the commercial property.

As Dave is 55, he decides to draw some tax free cash from his SSAS.  He’s entitled to take a maximum tax free cash sum of 25 per cent of the fund value.

Instead of drawing cash, he decides to transfer into his name the commercial property as a tax free withdrawal.

Its value is less than the 25 per cent he’s entitled to draw tax free, which means he can draw a further tax free sum at a later date.

Dave then transfers the commercial property from his personal ownership to his property company as a director’s loan. 

To fund the conversion costs, the SSAS grants a loanback to Dave’s company.  The loan has to be secured with a first charge and the commercial property is used for this purpose. 

Dave’s company pays interest on the loanback to his SSAS.  It’s tax deductible in the business, but it’s received tax free in the SSAS, growing Dave’s pension fund in the process.

The conversion was completed and Dave sold the property for a substantial profit.

It was a great result for Dave. 

He extracted his commercial property from his SSAS tax free, enabling him to convert it to residential without the worry of HMRC tax charges. 

The SSAS funded the conversion costs and made Dave some interest for his SSAS in the process.  Dave’s company made a handsome profit on the conversion. 

As Dave had provided the company with a director’s loan from his personal resources, he was able to repay that director’s loan tax free. 

From the trading profit, Dave made a SSAS contribution from his company.  It sheltered the profit in the tax privileged SSAS and reduced the Corporation Tax liability of the company.

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