Very few owner directors of limited companies are aware that they are eligible to use their former employer or private pension funds as a source of cash to fund their current business.
This is achieved through the use of a little known business SSAS Pension. If you are an owner director of a limited company and have in the past contributed to personal or workplace pensions, then a SSAS Pension could be a very valuable tool to help fund your business – particularly given the current economic outlook.
SSAS Pensions are designed to give business owners control over and flexible outcomes from their pension funds. You can transfer cash from your former workplace and private pensions into your company bank account via your SSAS Pension. This is achieved through a loan back facility that is available through your SSAS and is considered for tax purposes as a formal loan. By doing this you are not only providing cash flow for your business, but also providing income into your pension as the interest on the loan is paid.
So how does loan back work? Under HMRC rules, a SSAS Pension is allowed to loan up to 50% of its value to your company. As a trustee of your SSAS Pension, you set the interest rate. HMRC decree that the interest rate must be at least 1% above the average base lending rate of the leading High Street banks. There is no specified upper limit of interest – provided the rate remains ‘commercial’.
You can therefore chose whether you pay minimal interest – simply taking the advantage of cash flow – or charge a higher rate – the interest being paid into your own pension pot and increasing its value, therefore reducing the profitability of your business and the corporation tax you will pay.
Example of how this works:
- You make a loan of £100,000 from your SSAS pension to your business.
- You set the interest rate at 8% p.a.
- At the end of year 1 the interest due would be £8,000.
- This would be paid back into the pension from the company as tax deductible loan interest.
- By doing this you would have saved your company £1520 corporation tax.
- 20% of the capital is due to be repaid each year, up to a maximum term of 5 years.
- The cash transferred to the company can be used for any purpose.
As you can see, you have reduced the tax your company pays and increased the value of your pension.
What else does the business SSAS offer to me and my business?
A SSAS pension benefits from the same advantages as more traditional pension schemes, for example:
- A tax free lump sum after you turn age 55
- No income tax on permitted investments
- No capital gains tax on the disposal of investment
However, the SSAS has much increased flexibility and control, which means major benefits to business owners, such as:
- The ability to invest in property and land
- The option to purchase shares in your company
- A broader range of alternative assets classes
- The potential to make investment in other unconnected businesses
- A SSAS may be more cost effective than a SIPP
If you’d like to find out more about how a SSAS Pension could benefit you, your business and your family we’d love to have a no obligation chat with you. Email us on info@astonleigh .com or call 07834 600024 and we’ll get a date and time in our diaries.