SIPPs and SSASs Flashcards
FactFind: Ltd co. owns premises, £540K. SIPP £250K Cash £220K Aims to Expand business.
State seven benefits and seven drawbacks to Dan and his business of Dan’s SIPP buying and owning the company’s business premises. (14 marks).
Seven from the following benefits:
• Uses pension savings which is not otherwise accessible.
• The property is bought using tax-relieved monies.
• Tax relief on contributions paid in to build up the required pension pot.
• The rent paid by the Ltd company to the SIPP is a business expense for the purposes of corporation tax.
• No tax payable on rental income received by the SIPP.
• No CGT/corporation tax payable on future sale of the business premises by the SIPP.
• The property is protected from creditors.
• Proceeds of the property sale to the SIPP will provide funds to the company to use towards any other business needs.
• The pension fund will receive rental income in addition to any pension contributions.
• Rent does not count towards the member’s annual allowance.
• It saves Dan having to find the capital to purchase the property.
Seven from the following drawbacks:
• Using a large part of the pension fund to purchase and own the property will reduce liquidity to provide benefits at retirement.
• Lack of diversification.
• Company will have to pay a commercial rent.
• Potential tax on sale of the property to the SIPP.
• Stamp duty and other costs associated with the purchase of the property by the SIPP.
• Higher ongoing administrative costs and complexity.
• If the business fails there could be a delay in finding a tenant and loss of income to the SIPP.
• Company will not be able to secure borrowing against the property in future.
• Lower maximum borrowing percentage than with personal borrowing.
FactFind: Ltd co. owns premises, £540K. SIPP £250K Cash £220K Aims to Expand business.
If the maximum amount is borrowed by Dan’s SIPP in order to purchase his company’s premises, calculate showing all your workings, the additional gross pension contribution required to allow the purchase to go ahead immediately. (6 marks).
- The SIPP would be allowed to borrow up to 50% (1) of the net value of the scheme. (1)
- Amount required to purchase property is £540,000.
- Fund required assuming maximum borrowing is £540,000 x 2/3 = £360,000 /£540,000/1.5 = £360,000.
- Deduct existing fund value of £250,000.
- Contribution required is £110,000 gross.
FactFind: Ltd co. owns premises, £540K. SIPP £250K Cash £220K Aims to Expand business.
Outline six costs either initial or ongoing that are likely to be incurred by either Dan or the SIPP in purchasing the company premises. (6 marks).
Six from the following: • Legal/solicitor’s fees. • Surveyor/valuation fees. • Stamp duty. • Searches/land registry fees. • Mortgage administration/arrangement fee. • Possible VAT. • Property management costs. • Financial advice charges.
FactFind: Ltd co. owns premises, £540K. SIPP £250K Cash £220K Aims to Expand business.
State seven possible benefits to Dan if he purchases the premises in his own name and rents it to the company. (7 marks)
- The maximum percentage of the property purchase price that Dan can borrow is higher than would be the case if the property was purchased by the SIPP.
- Dan will obtain rental income / a national insurance efficient way of taking ‘income’ from the business.
- He can use the property as security for personal loans.
- The premises will be separate to other company assets / there is no business risk.
- Business Relief (1) and Entrepreneur’s Relief (1) should be available as it is used within the business.
- The property will not need to be sold when he retires.
FactFind: 2 guys; Directors of W Ltd & sole members of SSAS FV £312K o/s loan of £40K. (merits of SSAS purchasing shares in W Ltd OR making a loan to W Ltd to purchase new business premises)
Explain the rules regarding a purchase of shares in Widget Engineering Ltd by the SSAS. (5 marks)
- The small self-administered scheme (SSAS) can only invest less than 5% of the scheme’s assets in Widget Engineering Ltd.
- The percentage is calculated at the time the scheme pays for the shares (1) and is not re-tested later, (1) unless new shares in Widget Engineering Ltd are acquired. (1)
- There are no restrictions on the percentage of shares that can be held in the company.
FactFind: 2 guys; Directors of W Ltd & sole members of SSAS FV £312K o/s loan of £40K. (merits of SSAS purchasing shares in W Ltd OR making a loan to W Ltd to purchase new business premises)
Calculate, showing all your workings, the maximum amount the SSAS can lend to the business if Widget Engineering Ltd were to purchase new business premises using a loan from the SSAS. (7 marks)
- The loan cannot exceed 50% of the net value of the scheme’s assets at the date the loan is granted
- Value of SSAS = £312,000
- Less outstanding loans = £40,000
- Net Value of the scheme’s assets = £272,000
- Maximum borrowing = £272,000 x 50% (1) = £136,000 (1)
- Total amount available for the property purchase = £272,000 + £136,000 = £408,000
Calculate, showing all your workings, the maximum amount the SSAS can lend to the business if Widget Engineering Ltd were to purchase new business premises using a loan from the SSAS.
Outline the conditions that would have to be met if such a loan were to be allowable (11 marks)
- The loan must be for a genuine commercial purpose (1) and cannot be more than 50% of the net scheme assets. (1)
- The property must be secured as a first charge (1) on assets greater or equal to the value of the loan. (1)
- Interest rate of at least 1% (1) over the average base rate of the six main clearing banks (1) rounded up to the nearest 0.25%. (1)
- The loan cannot last for longer than 5 years (1) although can be rolled over once. (1)
- It must be repaid at least annually (1) in equal instalments of capital and interest. (1)
SIPPs
available through platforms
can hold directly traded shares/bonds
greater flexibility than a PPP/SHP
SIPP charges
may be higher than PPP/SHPs
- set up fees
- property fees
- annual admin fees
- fund charges etc
SSAS Vs SIPP
- SSASs are occupational scheme / individual trusts
- SIPPs are contract-based plans (personal) / master trust
- SSASs are aimed at Co.Directors/Senior Employees - eligibility requirement more restricted than SIPPs
- SSASs are regulated by a separate body - The Pensions Regular (TPR)
- SSASs has more restrictions in terms of investing in the sponsoring employer than the SIPPs
- SSAS - one investment pot / SIPPs - earmarked
- SSAS - contributions & benefits are non earmarked / SIPP - earmarked
- SSAS - net pay method / SIPP - relief at source method
- SSAS - collective investment choices made by ALL Trustees / SIPP - investment choice made by Member
- SSAS - no need for a Statutory Money Purchase Illustration (SMPI) / SIPP - SMPI is required
- Both has ability to borrow for investment & to invest in commercial property
- Membership is Restricted for SSASs but open for SIPPs
- Both offer PCLS, annuity, FAD, UFPLS, but in addition SSAS also offer scheme pensions
SSASs
a self-administered scheme <12 member, all trustees
usually defined contribution
can lend to sponsoring employer
SSASs and SIPPs - self investment options include, investment into:
differences - SSAS ‘can’ loan to a sponsoring employer whereas a SIPP can’t as it doesn’t HAVE a sponsoring employer and is set up under a contract
- FCA authorised or recognised collective funds
- Securities listed on a recognised stock exchange
- Unlisted shares
- Commercial property
- Bank deposits
SSAS and SIPP - taxable property
- Residential property and related land
- A beach hut
- Timeshare accommodation
- Multi-dwelling house let to students
- Ground rent
- Tangible moveable property (art, antiques, jewellery, fine wine, boats, classic and vintage cars, stamp collections, rare books)
SSAS and SIPP - permitted investments (non-taxable property)
- Children’s homes
- Halls of residence
- Hospices
- Prisons
- Hotels (if owned in its entirety)
- Caretakers flat
- Investment grade gold bullion
Investment in Sponsoring Companies
SIPPs do not have a limit when investing in Sponsoring Companies (but beware of ‘indirect investment’ rules)
SSASs can only ‘Self-Invest’ up to a maximum:
•up to 5% of Scheme Assets in any one sponsoring employer
up to 20% of Scheme Assets where shareholdings relate to >one sponsoring employer
% at time payment into the shares are made
no restrictions on % of shares held in one company