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John Moore, of Strabens Hall, has produced a short case study, which might be of interest to those who run limited companies who want to know more about tax efficient pension planning.


A Defined Benefit Small Self Administered Pension Scheme (SSAS) should be seriously considered if you or any of your clients are starting the process of selling a business. A SSAS helps the company to become more tax efficient in the lead up to the sale, but such schemes can also provide finance at the point the directors need the capital.

The following case study — based on the work we did for one of our clients — clearly explains the benefits of a SSAS. In this case the company was not being sold, but it does illustrate how these pensions can reduce tax liabilities in the lead up to a sale, which may additionally improve the chances of finding a buyer.

A Defined Benefit Small Self-Administered Pension Scheme (DB SSAS) might be considered if a limited company is paying significant amounts of corporation tax.  A DB SSAS is an occupational pension for directors of limited companies.

There are four main ways in which to extract profits from a limited company:  salary, dividends, expenses and pension contributions.

A Defined Benefit SSAS is the most tax efficient ways of extracting profits from a business.

A husband (H) and wife (W) with twin daughters (aged 16) and a son (aged 8) — we recommended they set up a SSAS and utilised a Cash Management Service (CMS).

H and W run a limited company, where W is head fashion designer for a global fashion business, paid through the limited company.

The business is turning over £3m a year and pays corporation tax of over £500,000 a year; the company has £2m in the business bank account.

We transferred H and W’s pensions to a Defined Benefit SSAS (which are available to the directors of limited companies, with up to 11 members).

A DB SSAS allows pension contributions of up to five times the combined annual allowance and can carry forward allowances combined, which means that up to £800,000 can be transferred to the SSAS, per director.

In this case, even though H and W only have £78,000 of spare annual income and carry-forward allowances, they are able to contribute a total of £370,000 to their pensions. This will immediately save the business over £70,000 in corporation tax and thereafter over £45,000 per year.

Once the daughters are 18, they will also join the business and the SSAS, providing further scope to make contributions and will help the business to further reduced its tax liabilities.

The SSAS will be used in the future to purchase their commercial premises in London, as soon as the scheme has sufficient funds. Excess cash in the business not placed into the SSAS will go into the Cash Management Service (CMS), where rates of between 0.75%-2.5% can be achieved, instead of 0.2%.

Additionally, as the CMS utilises over 20 banks, there is increased use of the Financial Services Compensation Scheme Limit (£85,000). This means that a far higher proportion of the £2m cash held by their bank is now protected if it went out of business and the CMS is earning significantly more interest for the business of around £36,000 per annum, compared to the £3,000 that they were previously getting.

Summary
At Strabens Hall we have significant experience in establishing and managing DB SSAS schemes.  SSASs also have these additional benefits:

1: Loans – a £1m SSAS can lend £500,000 to the director’s business (known as a loanback). These loans can help with business activities, or even be used to help purchase other companies

2: SSASs are free of Capital Gains Tax, income / dividend / interest tax, and also Inheritance Tax

3: A the SSAS is a trust, therefore all benefits within are creditor protected

4: The running costs of the SSAS are a deductible business expense for corporation tax

5: A £1m SSAS can borrow a further £500,000 to purchase land or commercial property worth £1.5m (known as borrowing)

For more information visit: Strabens Hall’s website.