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How a cash contribution from your business works
ABC Limited is owned by Mr & Mrs Smith who are both employed by the company; the business has pre-tax profits of £100,000 and would normally have to pay £20,000 in tax (20% tax rate).
Mr & Mrs Smith are both members of ABC SSAS and decide to make a business contribution of £70,000. The contribution is paid gross into the SSAS bank account. This payment qualifies for tax relief reducing their company taxable profit to £30,000. This means that the new tax bill for the business will be £6,000, giving a tax saving of £14,000
How an in-specie contribution from your business works
If an individual or business owns an asset, it may be contributed into the pension scheme and tax relief can be obtained on the payment. These contributions are classed as in-specie transfers.
EF Trading Limited is owned by Mr & Mrs Jones who are both employed by the company; the business has pre-tax profits of £80,000 and would normally have to pay £16,000 in tax (20% tax rate). They own a commercial property worth £200,000 that has a mortgage of £150,000. They wish to contribute £50,000 representing the equity in the property.
After taking regulated financial advice, they set up a SSAS with Pension Practitioner. The SSAS is tax registered and a valuation is obtained on the property.
A declaration of trust is drafted and £50,000 is transferred as an in-specie of property to the pension scheme. The SSAS now owns £50,000 of property representing 25% of it’s value. The SSAS is also entitled to receive rental income in respect of it’s share of ownership.
How property purchase at auction via a SSAS works
If you are buying at auction, you will be deemed purchasing on arms-length terms. At auction, you may need to put a deposit down of 20% following the winning bid and then complete within 28 days. Each auction can be different so check this out beforehand.
The chances are that you will know in advance which property you wish to buy and have completed due diligence.
You will need to bring with you your cheque book for the SSAS bank account plus two forms of identification.
After the auction
If your bid is successful, you must pay the deposit to the auctioneer there and then. This means you will provide them with a cheque that you sign on behalf of the pension scheme bank account.
They auctioneer will ask who the vendee is and this will be you and any other scheme member – as trustees of your SSAS. Please remember that there must be two trustees of your SSAS.
As confirmation of the sale and acknowledgement of receipt of the deposit, the vendor’s agent will countersign the Memorandum of Agreement.
You will need to give us a call with the good news so that we can ensure that in conjunction with your solicitor, you complete promptly and that the balance of funds are paid to the vendor.
Your solicitor on completion will file the title change with the land registry in your names, but cited that the property or land is in trust for your pension scheme. Any stamp duty payable will need to be met from your SSAS bank account.
How to invest in residential via buy to let with a SSAS
Delta Properties Limited buy develops residential dwellings. It is seeking short term “mezzanine” funding and the Director, Tony has a SIPP.
After taking regulated financial advice, Tony sets up a SSAS and transfers the SIPP as a cash transfer into a pension scheme bank account. The cash value of the SIPP amounts to £80,000.
Delta Properties Limited have net assets of £60,000 and the business is not presently ailing.
The SSAS makes a loan to Delta Properties Limited for £40,000, as a cash transfer from the SSAS bank account into the Company bank account.
A charge is registered against the business for the loan plus interest.
The interest charged on the loan is 4% repaid over 1 year, which works out at £41,600. Once the loan is repaid off, the charge is removed.
The mezzanine funding is a cost effective route for funding and the interest is paid into the pension scheme bank account.