How to Make Money by Setting Up a Corporate SSAS (Small Self-Administered Scheme)
This is a financial promotion and is intended to provide information, not investment advice.
A Small Self-Administered Scheme (SSAS) is a type of occupational pension scheme designed primarily for small businesses, typically with fewer than 12 members. One of its key advantages is the ability to offer businesses a way to invest corporate profits tax efficiently, while simultaneously providing the flexibility to support business growth. In this post, we’ll explore how a corporate SSAS can help you make money, grow your business, and plan for retirement.
What is a Corporate SSAS?
A Corporate SSAS is a pension trust set up by a company for the benefit of its directors, key employees, and sometimes family members. While similar in structure to a Self Invested Personal Pension (SIPP), a SSAS offers additional flexibility and control, allowing business owners to direct the pension fund’s investments in a wide range of assets, including commercial property, loans to the sponsoring company, stocks, and more.
SSAS pensions are overseen by trustees, who are usually the scheme members themselves, offering direct control over the scheme’s investment strategy.
How Can Setting Up a SSAS Make Money for Your Business?
Setting up a corporate SSAS can provide several opportunities to generate wealth both for the business and for the individuals involved. Below are some of the key ways a SSAS can help you make money:
1. Tax-Efficient Investment Growth
One of the biggest advantages of a SSAS is the tax efficiency it offers. The money held in a SSAS grows free from capital gains tax and income tax on investments. This means that any gains made from assets such as commercial property, stocks, or other investments are not subject to tax while inside the pension wrapper, allowing for faster accumulation of wealth over time.
By allowing tax-efficient growth, a SSAS maximises the returns on the funds within the scheme. Additionally, because contributions to the SSAS can be made by the sponsoring business and treated as a business expense, they reduce the company’s corporation tax bill.
2. Loan-Back Facility
One of the standout features of a SSAS is the loan-back facility, which allows the SSAS to lend up to 50% of its total value back to the sponsoring company. This loan can be used to help fund business growth and purchase assets. The loan must be secured and repaid at a commercial interest rate, which means the business gains access to capital, while the SSAS benefits from receiving interest on the loan.
By offering a secured loan to the business, the SSAS generates a steady stream of interest payments back into the pension fund, allowing it to grow further. At the same time, the business gains access to low-cost, flexible funding, enabling it to pursue growth opportunities without having to rely on external borrowing.
3. Commercial Property Investment
A SSAS allows the purchase of commercial property, which can be a profitable long-term investment. The SSAS can buy the business’s premises and lease it back to the company, providing rental income for the pension scheme while freeing up company funds.
This setup provides two significant advantages:
- Tax-Efficient Rent: Rent paid by the business to the SSAS is tax-deductible, reducing the company's tax liability.
- Pension Growth: The rental income received by the SSAS boosts the pension pot, growing the fund over time.
Furthermore, if the commercial property appreciates in value, the SSAS benefits from the capital growth, which is free from capital gains tax.
4. Diversified Investments and Asset Flexibility
A corporate SSAS offers a wide range of investment opportunities beyond what is typically available through more traditional pensions. SSAS trustees can invest in stocks, bonds, mutual funds, commercial property, and even private equity. This flexibility allows for better diversification, helping to spread risk across multiple asset classes.
The more diverse the SSAS portfolio, the more potential there is for growth. Investments in growth assets like stocks and property can lead to higher returns over time, while more secure investments like bonds provide stability to the pension fund.
5. Tax-Efficient Contributions and Withdrawals
Contributions made by the business to the SSAS are tax-deductible, reducing the overall taxable profits of the company.
On the personal side, as per September 2024, when the time comes for members to withdraw their pension benefits, they can take 25% of the value of their SSAS as a tax free lump sum upon retirement, with the remainder taxed as income. This can lead to significant tax savings compared to other investment structures.
By making contributions to a SSAS, the business lowers its tax liability, and employees enjoy tax-efficient withdrawals at retirement, making it an attractive option for long-term wealth planning.
6. Inheritance and Legacy Planning
Another advantage of a SSAS is its flexibility for inheritance and legacy planning. When a member of the SSAS passes away, the remaining pension funds can be passed down to beneficiaries, usually without inheritance tax. This makes SSAS an effective vehicle for passing wealth on to future generations in a tax-efficient manner.
By using a SSAS, members can ensure that their wealth is passed down in a way that minimises the tax burden on their heirs, preserving more of the funds for future generations.
P2P Lending as a SSAS Investment
Just like other assets, P2P lending offers a flexible way for trustees to diversify their SSAS portfolio. The SSAS can lend money to individuals or businesses via regulated platforms like easyMoney, and in return, the pension fund earns interest on these loans.
This setup provides two significant advantages:
- Higher Returns: P2P lending often offers competitive interest rates, typically ranging between 5-7% per annum (as per September 2024), which can outperform more traditional investment options like bonds or cash savings.
- Diversification: P2P lending enables the SSAS to diversify its investment portfolio by allocating funds across different loans, borrowers, or property-backed loans.
- Property-Backed Security: Platforms like easyMoney offer loans secured against UK property, adding an additional layer of protection for SSAS funds.
However, it’s important to note that P2P lending is not covered by the Financial Services Compensation Scheme (FSCS), meaning there is a risk of borrower default. As with all SSAS investments, trustees must carefully assess the risk profile and ensure that their chosen platform is properly regulated.
Understanding the Risks
While a Small Self-Administered Scheme (SSAS) offers numerous financial advantages, such as tax efficiency and flexibility, it's important to recognise the potential risks involved. One of the key risks lies in the investment choices made within the SSAS. The value of the investments, such as stocks, property, or loans to the sponsoring company, can fluctuate. Poor investment performance or economic downturns could lead to a reduction in the value of the pension fund, impacting both business and personal wealth.
Additionally, while the loan-back facility allows the SSAS to lend funds to the sponsoring business, this introduces a level of risk if the company encounters financial difficulties and cannot repay the loan on time, affecting the growth of the pension fund.
Another area of risk is regulatory compliance. SSASs must be managed carefully to comply with HMRC rules, and any failure to do so could result in significant tax penalties.
Therefore, it's crucial to have professional advice and proper governance in place to ensure the scheme operates within legal boundaries.
Lastly, liquidity risks may arise if the SSAS invests heavily in illiquid assets such as commercial property. While these assets can appreciate over time, they may not be easy to sell quickly, potentially causing issues if cash flow is needed for retirement payouts or other obligations.
As with any investment vehicle, it is essential to balance potential returns with the risks involved and ensure that your investment strategy aligns with both your business and personal financial goals.
Setting Up a Corporate SSAS
Setting up a corporate SSAS involves a few steps, but the potential for long-term financial growth makes it worthwhile. Here’s how the process typically works:
1. Appoint Trustees: The company must appoint trustees to manage the SSAS. The trustees will typically be the business owners or key employees.
2. Register with HMRC: The SSAS must be registered with HM Revenue and Customs to receive the tax benefits available to pension schemes.
3. Develop an Investment Strategy: The trustees, with the help of financial advisers, will develop an investment strategy that aligns with the company’s and members’ financial goals.
4. Contribute to the SSAS: The company can begin making contributions, which are tax deductible, allowing the SSAS to grow tax-efficiently.
5. Manage Investments: Trustees will have the flexibility to manage and invest the SSAS funds in a range of assets, including commercial property, loans to the business, stocks, and other permitted investments.
A corporate SSAS offers a range of opportunities for both businesses and individuals to make money, grow wealth, and fund business operations in a tax-efficient manner. By setting up a SSAS, businesses can benefit from tax relief, the flexibility to invest in a wide range of assets, and even borrow money back into the business.
Whether you’re looking to invest in commercial property, offer loans to your business, or simply grow your pension fund, a SSAS is an excellent vehicle for managing corporate and personal wealth. As always, it’s important to seek professional financial advice when setting up and managing a SSAS to ensure compliance with all regulations and to maximise the financial benefits available.
Past performance is no guarantee for future results.
Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.