ON PENSION BUILDING

I would not attempt for legal and technical reasons to go into the maze of legislation and options related to pensions and pension planning.  This is a job for the specialists and I would urge extreme caution before considering any of the issues below.

The SSAS (Small Self-Administered Scheme) is a piece of pension legislation that works particularly well for controlling shareholder managers.  Basically, any excess profits made by the company can be put into the pension fund.  By doing so the company minimises its corporation tax liability and money goes into the pension fund, tax free for the benefit of the owner managers. The money, if required, can then be loaned back to the company on commercial terms.

The pension fund can purchase premises for the company and lease them back to the company on commercial terms. The pension fund can also subscribe for shares in the company, again subject to certain rules, which means that when the company is sold, the pension enjoys the capital growth of the shares, free of capital gains tax.

So over a long period of time the SSAS pension fund can build up significant assets for the benefit of the shareholder manager, whilst minimising the cash implications for the company and optimising its corporation tax liability each year.

However, because the scheme is so good, your advisers must take care that the SSAS does not become over funded, because at some stage the SSAS fund has to be converted to some form of personal pension plan for the members and this is where the limits are now being looked at very closely by government.  Any over funding at that stage is taxed and paid back to the company, which may have already been sold and the money not accessible to you. The role of SSAS must therefore be taken into account at the time of any sale and purchase agreement and the potential issue of over funding then or in the future, allowed for in undertakings by the purchaser.

However, a word of extreme caution, a business needs cash to survive and grow and this must always be the first priority on cash. Shareholders pensions must never be used in a way that could endanger the survival and growth of the company. Any proposed major pension actions should always be discussed and agreed with your bank and external investors. The legislation exists, and provided it is used wisely, it can benefit of all parties involved in the business.


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