Pensions Flashcards
What are the rules around a SSAS making a loan? (10)
Can loan 50% of net assets
To sponsoring employer
For any purpose as long as commercial (not to prop up failing company)
Secured against an asset outside the pension scheme (first legal charge) for entire period of loan
With value of the loan and interest over loan.
Charge needs to be registered with Companies House
Loan over 5 years maximum.
Equal instalments of capital and interest.
Can be rolled over for another 5 years.
Interest at minimum of 1% above base rate of 6 main clearing banks.
Can purchase shares in the company of up to 5% of scheme’s net assets.
How do you work out what a SSAS fund value needs to be in order to purchase a property?
Work out the value of the property (including stamp duty and purchase costs), divide by 3/2. Work out if there’s a shortfall between that figure and the current SSAS net value
What is the tax treatment of pension contributions from a company into a SSAS?
The annual allowance is £40k
Someone may have carry forward if they were in a registered pension
If no carry forward the excess over this will be taxed on the individual personally at their marginal rate.
Pension contributions receive full corporation tax relief if owner managed business and wholly and exclusively for business purposes
What are the obligations of an employer with regards to their auto enrolment scheme? (8)
Segment workforce Put in place qualifying scheme Make contributions on behalf of all eligible employees (and entitled workers who opt in) At leat at the minimum levels (3% from ER 8% total) For all staff Reenrol opt outs after 3 years Register with The Pensions Regulator Can defer by 3 months
Explain the annual allowance for a high earner.
If their threshold income is higher than £110k and adjusted net income is above £150k their annual allowance is tapered £1 for every £2 over £150k from £40k down to £10k
What are the tax implications of putting 40k into a pension with a 10k annual allowance?
Claim tax relief on the first 10k
Next 30k subject to a tax charge at highest marginal rate
Tell HMRC via self assessment
Personally liable for the tax but he can ask the scheme to pay on his behalf
What are the steps for someone to buy a commercial property when they have a personal pension?
It’s not possible to purchase property within a personal pension
They should transfer their PP into a SIPP or a SSAS
If the property cost is more than the value they could make further contributions or borrow within the scheme
What are the benefits of a SSAS over a SIPP?
SSAS pools funds meaning only one scheme needed which means easier administration
SSAS can lend money to the sponsoring employer, providing finance if they want
SSAS is an individual registered pension scheme and members are trustees so they have more control
Sponsoring employer can pay operation fees which are deductible against corporation tax and allow the VAT to be reclaimed by the company
What are the advantages of buying a property within a SSAS?
Bought with tax relieved money
company rent (commercial amount) is paid into the pension and increases the pension fund without affecting the annual allowance.
Rent is not taxed on individual
The property would be protected from creditors as its independent of the business.
No CGT on property
Outside estate for IHT purposes
Can retain personal assets or cash and don’t need to borrow against main residence
Salary of £30k and £100k dividend with no personal or employer contributions for 5 years. What is maximum they can put into a SIPP without suffering an annual allowance charge?
Threshold income £130k so adjusted income must be calculated
Adjusted income is £130k plus and employer contributions
Can carry forward £40k pa from last 3 tax years (£120k)
When added to her adjusted income it makes it £250k
Her AA for this year is reduced to 10k (as over £210k so full taper)
Max contribution without AA charge is £120k + £10k so £130k
Outline factors to take into account determining future levels paid into a pension
Retirement age Required income How taking income (annuity or drawdown eg) ATR & CFL Affordability State pension Other sources of income Health Future earnings Future tax rate Will they sell their business Expected growth rates
Explain implementation process and any restrictions around a company setting up salary sacrifice for employees (8)
Documented via exchange of letters
Written agreement to show reduction in salary for additional pension provision
This must be before it happens
Contractual change to employees terms and conditions
Employer must pay reduction into pension scheme
Reduces NIC for EE and ER
Can’t take employee below minimum wage
Usually irrevocable although it’s possible to change if the employee has a change in financial circumstance
Why business owner should build up resources outside business to use as a retirement fund
Insure against risk of a disappointing sale value when selling business
May want to pass business to next generation (so may not get value from it)
Provides choice and flexibility about when and if to sell
Business could fail before retirement
Increases tax planning opportunities
