Graham and Tracy were successful joint shareholders at a business based in Telford. They were referred to us for advice relating to setting up a Workplace pension. They had an old pension scheme with an insurance company but they were not able to change their rules in order to become a qualifying scheme and so they needed an alternative. We helped guide them through the process of how to advise their employees of the changes about to take place and how to set-up a new scheme that fulfilled all their statutory obligations.
During our consultation they confirmed that they had their own personal pensions worth around £80,000, and asked whether they should continue with them. We took them through a full briefing and learned that they were eager to reduce their Corporation Tax liability, and that they’d love to buy their own premises on one of the local Business Parks with an asking price of £600,000.
We confirmed that they were able to move their pensions to a small self-administered pension scheme (SSAS) and utilise their annual pension allowance of £40,000 each. They could also use Carry Forward of unused pension allowances from the previous three years, meaning total contributions could be made to £180,000 each. Subject to the wholly and exclusively rule, the contributions would be treated as a trading expense which would save the company £36,000 in Corporation Tax.
Added to the £80,000 they already had, this would provide a fund of £440,000. As a SSAS is able to borrow up to 50% of the scheme’s net assets, in this case Graham and Tracy would be able to access an additional £220,000 if they needed, making the business premises’ asking price of £600,000 well within their means, with additional funds left over for alterations and modernisation.
The company would make future rent payments to the SSAS, which would be another deductible expense for the company, and the SSAS would receive the rent gross with no additional tax liability. Best of all, if they sold the premises in the future any gains would be capital tax-free. The income received would be used to service the loan and once repaid would boost the retirement fund.
The purpose of this case study is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. All statements concerning the tax treatment of products and their benefits are based upon our understanding of current tax law and HMRC practices both of which are subject to change in the future. Levels and bases of reliefs from taxation are also subject to change, and are dependent on your individual circumstances. Tax planning and Small Self-Administered Pension Schemes are not regulated by the Financial Conduct Authority. Auto Enrolment advice to employers is not regulated by the Financial Conduct Authority.
