When it comes to self invested pensions you would be forgiven for thinking that a SIPP is the only option, however in the right circumstances a SSAS (Small Self Administered Scheme) can be more appropriate and in some circumstances offer things a SIPP cannot.
So, why consider a SSAS instead of a SIPP?
Each SSAS is written under its own individual Trust, which means that within HMRC rules it can be tailored to the specific needs of the members. This is different to a SIPP which is written under a Master Trust and scheme rules are laid down by the SIPP provider.
Assets are not earmarked within a SSAS, which means that if one member wishes to take benefits or indeed transfer out, the proportion of the SSAS earmarked for the member can be taken from any of the assets in the scheme.
This is different to a Group SIPP arrangement where each SIPP owns a proportion of the asset, for example a group of five SIPPs each owning 20% of a commercial property. Therefore if a member wishes to leave the group or take benefits the other members would effectively have to ‘buy them out’, or the asset, or at least a proportion of it, would need to be sold.
A SSAS can make a loan of up to 50% of net scheme assets back to the sponsoring employer.
A SIPP is not allowed to make loans to connected parties; this is one of the major differences between a SIPP and a SSAS.
For a loan to proceed five conditions must be met:
1. The loan must be secured throughout the full term as a first charge on an acceptable asset either owned by the sponsoring employer, or some other person, which is of at least equal value to the face value of the loan including interest
2. The minimum interest charged for the loan is 1% above the average base lending rate of six leading high street banks
3. The maximum repayment period of the loan is five years from the date the loan was advanced
4. The maximum amount of a loan which can be made to a sponsoring employer is 50% of the net value of the assets held in the SSAS
5. All loans must be repaid in equal instalments of capital and interest for each complete year of the loan
Effective use of the loan back can result in double tax relief. The company gets tax relief on a contribution going into the scheme in the first instance. The SSAS then lends funds back to the employer to purchase an asset. The company claims the asset purchase as a capital allowance as normal.
In addition to the above the full range of investment options is available via SSAS as it is for SIPP.
For a long time SSAS charges have been perceived as being particularly expensive compared to a SIPP, this may go some way to explaining why they have been the less popular self investment option over recent years.
However, this is not necessarily true, and in certain cases it can be cheaper to establish a SSAS rather than a Group SIPP arrangement particularly when buying a property.
If you are looking at a self invested pension look at both SIPP and SSAS schemes and take time to evaluate which is the best option for you. It may well be the case that a SIPP is the right decision; however there are occasions when a SSAS can prove to be a better alternative.
To discuss self investment options in general and which option is right for you do not hesitate to contact one of our team of knowledgeable, experienced and independent advisers on 0115 933 8433 or email firstname.lastname@example.org