Sipp vs Ssas anyone else in the same boat??

Lokolo

kidmugsy wrote: »

The more people who drop out, the more easily the taxpayer can continue to fund the largesse.

Personally I'd rather we scrapped the extravagant pensions for government employees, and just paid whatever pay rises proved necessary to attract and retain staff. Naturally, I'd expect pay to vary according to which skills are in short supply, and where in the country the shortages occurred. If that meant that some people found their pay reduced, so be it; doubtless most would find their pay increased.

The private sector started scrapping DB schemes years and years ago once they realised how unaffordable they really are. The public sector should have done it already.

I think giving a generous DC scheme would be much more appropriate. However, that would upset a lot of people...

iwantasmallholding

The returns I know I can make will be similar if not greater than then the contribution rate of the govmt. Not taking into account property value increases and the fact I will own the assets at the end. The high returns will require a lot of work and managing, and carefully written contracts and close management. The plan is to only hold 2-3 hmo's before moving to student lets, with much lower returns but less work. And eventually standard residential housing managed by an agent. If the pension is not the way forward I have back ups in that I can purchase the wife's commercial shop premesis or buy land and build a shop. The market rent then goes into the pot, and the shop can be realeased to us at 55. So this is not a whim, it has been carefully considered, and despite hmo's being my hope I have plans b and c which will fall straightforwardly I to a Sipp or sass. I then have the option to remortgage and raise he finds that way. So I know many on here seem to think I am mad. When you go from being told you will be retired at 50. With 100k lump sum and 16.5k per year and paying 11%. To being told you have to pay 14.4% work till 60. And have a carrear average scheme, with a reduced 60k lump and a similar year income something has gone wrong drastically.
The average draw on a pension from my occupation is about 4 years, currently, so there is many 50 year d retirees who are dead before I will see a penny. Also looking at who has just been elected there is due to be bigger cuts and I would bet future increase in contributions. Once I have set up the ltd company I can opt back in as long as the break is less that 5 years. And I only do it once.

Our pension reforms were only ratified about one month before they came in, and no IFA had details of what was about to come in, lots of if's and buts. So would you really automatically sign up to something there was no information about? and there are now many opt out penalties that I don't face by coming out of the old scheme. So a break is not a such a bad thing as I am not out forever. Also it's only a good scheme if you work till 60. If I leave between now and then, I will not recieve a penny till I am 67 (currently) which is another reason for leaving and going my own way. Or 55 and due to early retirement lose 25% of my original bennifits.

dunstonh

The returns I know I can make will be similar if not greater than then the contribution rate of the govmt.

Similar will not be good enough. Double will be closer to the mark just to retain a similar figure. You are effectively estimating on a massive return that is statistically unlikely just to get the similar level of benefit.

The average draw on a pension from my occupation is about 4 years, currently, so there is many 50 year d retirees who are dead before I will see a penny.

That is very much different to the UK average. However, even if that is the case, there are ways to address that which would be better than leaving the scheme.

So would you really automatically sign up to something there was no information about?

The changes dont make excellent schemes poor. Just not as excellent as they once were.

As a taxpayer, I thank you for reducing the burden on the state. However, it was still a bad decision on your part.

coyrls

iwantasmallholding wrote: »

If the pension is not the way forward I have back ups in that I can purchase the wife's commercial shop premesis or buy land and build a shop. The market rent then goes into the pot, and the shop can be realeased to us at 55.

Out of interest I looked to find out the rules for Property in a SIPP:

Pensions legislation restricts you from investing in most types of residential property, or any other property where you would be able to gain some form of personal benefit.

https://www.rowanmoor.co.uk/pdf_files/SIPP_Property_Guide.pdf

So your wife's shop or a shop that you build is unlikely to qualify, I would think.

As I've said in a previous post, it would have been better to have done your research first. It took me about 5 minutes to find the above.

Freecall

iwantasmallholding wrote: »

The reason for a ltd company is to allow me to make my kids directors in the future (3 of them) and thus reduce inheritance tax,

I may have missed the subtlety here but you must have some elaborate tax plans to reduce IHT by making your children Directors of the company.

Apodemus

Freecall wrote: »

I may have missed the subtlety here but you must have some elaborate tax plans to reduce IHT by making your children Directors of the company.

Lol! That was the bit that I thought sounded sensible!

I am intrigued to know what sort of Government work gives a life expectancy of 54. If that is correct there is some sort of H&S scandal waiting to be made public.

Also, I thought each of the pension changes meant that previous years' contributions were frozen under the older scheme. Certainly my DB pension statement gives different figures for the sums accrued under each incarnation of the scheme.

Unless the rules have changed, you used to be able to buy additional land for your farm and put it into a SIPP. I think the farm business possibly had to pay the SIPP a market rental to keep the two entities on an arms-length footing, but it was do-able. Can the same not apply to rental property with the tenant being the Ltd Company? (Although this would mean that the property value was within the SIPP and not achieve the IHT protection).

bowlhead99

Apodemus wrote: »

Unless the rules have changed, you used to be able to buy additional land for your farm and put it into a SIPP. I think the farm business possibly had to pay the SIPP a market rental to keep the two entities on an arms-length footing, but it was do-able. Can the same not apply to rental property with the tenant being the Ltd Company?.

You can put farmland and commercial property into your SIPP or SSAS and someone can then rent the property from the pension at a commercial rate. It can be quite efficient for a company to rent its business premises from the owner's pension at arms length rates, taking money out of the business as an expense (which reduces taxable profits) while giving an income to the pension plan. Pensions holding direct commercial property is quite handy. You can even put land or development property which is eventually going to be residential property into them, as long as the pension fund sells it before it becomes actual residential property.

However you can't hold residential property directly in these wrappers. I am sure you wouldn't get round it by telling the pension company saying that the property they own was commercial property, let to your personal company, and then your company sublets it on as residential. The trustees have to know what it is. Unless you want very painful tax consequences, the pension can't own residential property directly or even indirectly unless via a genuinely diverse commercial vehicle such as a REIT.

Freecall wrote: »

I may have missed the subtlety here but you must have some elaborate tax plans to reduce IHT by making your children Directors of the company.

I'm assuming he is thinking of using a SSAS rather than a SIPP.

A Small Self-Administered Scheme is as the name suggests a pension plan sometimes used by small companies for directors and key employees. The pension can, like a SIPP, invest in a range of assets and one of the things it can own is shares in the company that the employees work for, or loans to the company secured as a first charge on company assets.

There are restrictions on how much of its assets can be used in this way, but (percentages from memory, might be way off these days) - if the SSAS has say £200k of net assets it could lend £100k to the company (with some minimum interest rate required), and invest £10k in shares in the company. The loans have to be paid back over a relatively limited period of time but could be rolled over within the allowed limits.

So I suspect what the OP is talking about with the whole 'kids as directors' thing is:

- SSAS is funded by OP.

- SSAS has some 'normal' pension assets which might include investment funds, listed companies shares, bonds, cash, commercial properties, etc; with a small proportion of its assets it also owns a large proportion of the ordinary share capital in OP's limited company, and also makes loans to the company (which have to get paid back over time, but could be re-lent again)

- OPs company runs its commercial business with some loan support from the SSAS within the allowed limits.

- Kids (assuming old enough) can become employees and/or directors of the company and members and trustees of the SSAS.

- Kids increase their stake in the SSAS by transferring in other pensions which they may have, and as directors/employees of the company they can receive large annual cash pension contributions into the SSAS from the company, increasing their stake in the overall SSAS. This is not a gift from the OP so it is presumably outside IHT, in the same way that the company giving them a dividend would have been outside IHT if they had been shareholders.

- Over time the payment of SSAS pension contributions to the kids as directors is efficient because the company is making low taxable profits (because of the cost of the pension contributions) and the kids are increasing their value in the pension, and if the company needs money the pension can lend money to the company (subject of course to the various rules and percentage of net assets limits).

- When the OP wants to take retirement benefits from the SSAS or transfer out, he can. The individual assets in the pension are not earmarked for specific members, they are pooled. So if he needs to take benefits of £200k out from a £600k pool of assets (e.g. for a transfer out, drawdown in retirement, death benefits to his wife and kids etc) with the kids' pension benefits representing the other £400k; then as long as £200k of liquidity can be found (whether from selling assets, calling in loans, new contributions from other members, or even commercial borrowing), he can get that £200k. The other assets of the SSAS (including the equity ownership of the company if they choose not to sell it or liquidate it, any remaining loans to the business etc) will belong to the remaining members.

If the reason he was 'cashing out' was death, then that death benefit would presumably be paid outside his estate with no IHT, because it was a set of pension assets controlled by the other trustees rather than being a pile of assets which he directly held.

So, for some family businesses, a SSAS can be quite a useful tool.

Does it work for the OP? Can he use his SSAS to hold some of the shares in his business and make loans to his business when one of the objects of his business is to be an owner of residential property? Presumably he doesn't want his SSAS to be the sole owner of his business, because he has mentioned the company paying occasional dividends to his children to help them with uni costs or buying their own properties. So the children will need to be shareholders too, because they wouldn't want to draw large taxable and NIable directors' salaries from the company to extract the money, and they wouldn't want the money to sit inside the pension wrapper until they are 55+ when uni fees are needed at 18+ ?

Maybe as he is someone who has worked in the public sector he misunderstands the nature of private businesses and the difference between having kids as directors and kids as shareholders and the various differences between SIPPs and SSASs and so on.

Well, presumably he is getting full tax and commercial advice around his business model and his pension planning and so it's not for us to tell him either way what is allowable vs not allowable, valuable benefit vs unnecessary expense and so on. He mentioned in his original post that once he's got his numbers he is going to go off to see his accountant. Whether he needs an accountant or a tax adviser or an independent financial adviser or someone to write a business plan... I guess he'll find out when he speaks to his accountant and the accountant gives him lots of caveats, an explanation of the limits of his liability, and the bill.

iwantasmallholding wrote: »

I am waiting for my finally valuation certificate and then I'll be off to my accountant but wanted to know what to ask him

If you know what you want to achieve then ask him whether it is possible and whether he is the right guy to help you achieve it and how he will do that. If you don't know what you want to ask him, why even go to see him?

and if it is possible.

The consensus from the posters above seems to be that it is not possible and that even if it is possible, you should maybe focus on clearing your debts before you give up your job, hand back the bulletproof pension plan, and launch a new business of your own. If you doubt the quality of the free advice on here, then probably the 'is it possible' question is what you would ask to the professionals you're paying to help you implement the plan.

Hopefully your accountant is well versed in specialist pensions, tax planning and financial advisory work rather than just being the type of accountant who does the bookkeeping for corner shops and taxi firms. Good luck with it all.

is there anyone else that wants to trade investments in there ltd co for investment in mine.

Asking that question on an anonymous internet forum sounds like a recipe for disaster.

it's very grey around hmo's being commercial or residential.

It doesn't seem that grey to me. If you write out HMO in full, it's House in Multiple Occupation. I think the presence of the word 'house' rather than 'office', 'warehouse' or 'shop' provides an indication that the premises is likely to be residential, rather than commercial use.

In the same situation?
Thanks

Nope. So, take what I and others say with a pinch of salt.

Apodemus

While the SSAS sounds interesting, I was assuming that the OP would do two things: make salary (or possibly dividend) payments to his kids at uni to cover their costs (which may be more tax efficient than paying the same amount to his kids out of his own after-tax salary) and secondly make lifetime gifts of company shares to enable transfer to the next generation free of IHT (but possibly liable to CGT) while still enabling him to draw salary and/or dividend from the company.

Alternatively, it may be that he was assuming the assets would qualify for Business Property Relief on transfer at death, but it may be that a residential property company does not qualify under this scheme.