When starting a business, the most important aspect is to get your startup capital and use it for the necessary funding. In this era, small business owners enjoy great success, especially if their business model offers long-term value and profitability. But itโs not only about having a business idea; you need reliable funding. One way to start and grow your business is with an SSAS pension.
What Is the SSAS pension?
A Small Self-Administered Scheme (SSAS) pension is an occupational pension scheme that a limited company can establish for up to 11 members. The members are usually key company staff members, like company directors.
According to the Pension Advisory Service, SSAS pensions provide additional investment flexibility to employees from their employers. Unlike standard pension schemes, SSAS pensions have diverse use cases, including starting a business and investing.
How to set up an SSAS pension for your business
Your business can set up an SSAS pension for key employees and use the funds for investment flexibility, buying commercial properties, protecting your assets, and loaning back to the company. You must set up a limited company with Companies House before starting a Small Self-Administered Pension Scheme (SSAS). If you are already retired, you can use your retirement fund as capital to start a new business, but ensure there are no restrictions to using your pension fund for this purpose.
To get started, your company has to set up a registered pension scheme and become joint administrators. You will also need to appoint a corporate trustee, who will act as a scheme administrator.
While having a corporate trustee isnโt a legal requirement, appointing one is still important to ensure that all the investments and procedures follow the HM Revenue & Customs (HMRC) guidelines. Also, the administrator or corporate trustee is responsible for registering your companyโs SSAS scheme with HM Revenue & Customs and the Information Commissionerโs Office (ICO).
Your business can also invite important staff members and, in some cases, their family members to join. Family members do not have to be employed by the company, but the maximum number of members is 11, including the family members. Family members are allowed because this is a tax-efficient way to pass on wealth, especially within family-run businesses. All scheme members act as trustees, and the decisions made must be unanimous.
As an SSAS trustee, you must manage your scheme and follow the pension regulations. These include making prudent investment decisions, keeping members’ best interests, and complying with reporting obligations. The scheme gives you complete control over your retirement funds and will go a long way in boosting your businessโs growth.
Ways SSAS pension can boost your business
SSAS pensions can help you save money for retirement and boost your businessโs growth. It is known for being a versatile type of pension that can be used for different purposes. Hereโs how:
Buy commercial property
With the pension fund, you can buy or invest in commercial property, which offers a big opportunity for your business. You can also rent the commercial property to your business. The pension fund would increase over time with this investment and be exempt from capital gains taxes. So, you can receive the rent for the property without paying taxes, and your business can pay less rent since itโs a taxable expense.
Lend to other businesses
If you have enough funds in the SSAS and your business needs some financial support, then you can provide a loan to your own company. This is called a loanback. Using the loanback option in an SSAS pension has different benefits, including flexibility and tax efficiency. You can fully control the loan terms, such as the interest rate, repayment schedule, and loan security.
Lend to your business
Aside from lending to your business, you can provide loans to other limited companies if the company is not related to the sponsoring employer or other members of the SSAS scheme. The SSAS fund will grow as you receive interest on the loan repayment, which is provided tax-free.
Buy shares
Another way to grow your business with the SSAS funds is to buy shares. You can use your SSAS to invest in stocks and shares in diverse companies. These include stocks traded on an HMRC-recognized stock exchange, equities on overseas stock markets, and shares in investment trusts. Third-party investing is also an opportunity, as you can buy shares in private limited companies.
Invest in real estate
Investing in real estate is also suitable for growing your business with an SSAS pension. You canโt buy or own residential property with your SSAS, but you can invest in development land, whether it will be later used for commercial or residential property. If the land you bought is eventually developed for residential purposes, you must sell the investment to comply with the SSAS.
Buy precious commodities
Commodities such as precious metals, oil and gas, industrial materials, agricultural commodities and cryptocurrencies can also be purchased with your SSAS pension. These are good ways to diversify your investment portfolio within your SSAS and protect it from inflation. But keep in mind that thereโs always investment risk involved.
Tax benefits of SSAS pension
An SSAS pension offers different tax advantages, as all the pension assets’ growth is protected from capital gains tax and corporation tax. You can also receive tax relief through self-assessment. As with other pensions, this allows you to withdraw up to 25% of your funds tax-free from when you are 55.
Making use of SSAS pension for startup growth
An SSAS pension offers flexibility and diverse advantages for your company. Whether you want to invest in commercial property or buy shares and commodities, the pension can help you with retirement planning and contribute to your business’s growth. By establishing an SSAS pension, you can unlock a range of benefits while preparing for retirement and provide loan funding to your business. Its tax-efficient structure and flexible investment options make it a powerful tool in your business growth strategy, so if youโre considering setting up an SSAS pension scheme, explore the benefits and keep your business goals in mind.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any finance decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.
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