Why Holding Property In A SSAS Can Save Tax
When Mother And Daughter Set Up A SSAS To Buy A Commercial Property, They Also Saved Tax, Optimised The Business’ Cashflow And Invested In Their Firm
Mother Joan and daughter Jilly are directors of their manufacturing business. The business used to operate from a small commercial property but it had to expand to meet demand.
A few years ago, the business bought a bigger factory with the aid of a commercial mortgage. The business still owns the original premises, but it’s rented to another firm.
With a constant stream of new orders, the business needed to raise money for new machinery and business growth. But when they approached their bank, the terms they were offered were very unattractive.
Joan and Jilly set up a SSAS and transferred in other pensions to create a sizeable pool of funds.
They used some of it to buy the factory from the business. Having repaid the mortgage, the business was left with a good proportion of the money it needed to support its cashflow.
The business pays rent to the SSAS, as it’s the landlord, growing the pension fund for Joan and Jilly.
To cover the remaining money the business needed, Joan and Jilly arranged a SSAS loanback over five years, secured with a first charge on the original commercial property. The interest rate was charged at a competitive 2 per cent above base rate.
The business now had all the money it required to cover the cashflow requirements.
Both the rent and the loanback interest are tax deductible from the business’ profits. They are both received in the SSAS tax free, to grow the fund for Joan and Jilly.
As the business prospers, Joan and Jilly can make pension contributions to reduce the business’ Corporation Tax bill.
As the commercial property is only one of the assets of the SSAS, when Joan retires, she can draw income without the factory needing to be sold.
Being held within the SSAS, the property is ring-fenced from business risks and liabilities. When it’s eventually sold, there will be no Capital Gains Tax to pay.
As other family members can be invited to join the SSAS, whether or not they work for the business, it provides a valuable way of cascading savings through the generations, as no Inheritance Tax is payable when the money is passed on.
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