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A company pension.... The directors' best friend?

26th Nov 2012

If you run your own business and have accrued funds in pensions, read on.

 

Despite poor press, it is sometimes easy to forget that contributing to a pension is one of the most tax efficient savings you can make.

 

For individuals, tax relief is granted at your highest rate (20, 40 or 50% income tax relief is very welcome in the current environment). For companies, a pension contribution is usually an allowable business expense, therefore reducing the annual Corporation Tax bill.

 

The annual input allowance is £50,000 per person, but any unused relief for the previous three years can be carried forward. In the right situation an individual could contribute up to £200,000 in one year if they had capacity and they had the earnings to offset such a high contribution.

 

Small Self-Administered Scheme (SSAS) is an occupational pension scheme for small businesses. Importantly, the Directors can act as co-trustees on the pension and therefore have far higher control in relation to the investment of the scheme assets.

 

It can be set up with new contributions, or alternatively can receive transfers from existing pension schemes. Individuals may be able to utilise old pension contracts in a way that will afford significant advantage to a business owner. Moreover, Directors can pool their pensions resources to maximise the size of the initial SSAS.

 

An SSAS has two particular features that make it stand out from a normal pension:

 

1) Loan back facility – a SSAS has the ability to loan back up to 50% of its scheme assets to the sponsoring company. This facility can be utilised to aid cash flow, to repay expensive loans or overdrafts or to fund specific capital projects.

 

2) Commercial property/Land purchase – an SSAS has the ability to hold commercial property or land as a scheme asset and can also borrow up to 50% of scheme assets to help with the purchase of property. The commercial property could be n interesting investment in its own right, or for owner- occupied properties, the SSAS becomes the landlord and the company pays rent to the pension scheme rather than to a third party landlord.

 

If you would like a review of your pensions and to consider the merits of setting up a SSAS please contact First Wealth on 020 8416 0111 or e-mail: robert@firstwealth.co.uk For First Wealth article:

 

Please note: This article does not constitute financial advice and you should speak to an Independent Financial Adviser to assess the suitability of any of the above for your situation. The value of your investments may go up as well as down.

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