SSAS vs SIPP, which is better?

Individual pension scheme: each scheme member makes their own arrangements as a sub-trust under one master trust. The SIPP’s status – as a sub-part of a larger master trust can mean it is less flexible than SSAS, which is a trust controlled by its members.

Occupational pension, self-administered by a trust made up from members of a company and other affiliated people. It’s a stand-alone scheme, which means it has more flexibility than a SIPP.

Some individuals are trustees of their own SIPP, but most SIPPs have a “professional” trustee/administrator (which comes with admin fees); some SIPPS join together (e.g. to buy commercial property). But there is less control, in the SIPP model – an individual (sub-trust) within the larger SIPP master trust.

The member’s employer can contribute to the SIPP and make deduction via payroll for the member.

In the SSAS all members of the scheme are trustees, and all decisions in relation to the SSAS trust must be unanimously agreed. Not only does this structure offer good security but so long as all members agree, then the trust has full control over investments.

Each member has a notional share of the funds in the SSAS, including property owned by the trust and money held in the trust’s investment plan. The fact that none of the assets or funds are earmarked can have tax advantages for members of the trust. Third-party SSAS members (e.g. family members can contribute to the fund).

The fees for operating the SSAS are an allowable expense against corporation tax and VAT can be reclaimed. Advice: It is highly recommended that the scheme hires a “professional” administrator unless one of the trustees happens to be expert in the UK tax system.

If a SIPP makes a loan to a “connected party” (e.g. a spouse or relative, or a trustee) it will incur a tax charge. Otherwise both SIPP and SSAS can make loans to third parties, but the rules are strict, and the SIPP master-trust may not agree to it. As the SIPP is not an occupational pension it cannot take advantage of the sponsoring employer” investment opportunity. See more about the rules relating to loans via a SIPP here.

The same rule applies regards the rule of a “connected party”, but with the SSAS the employer is connected if the scheme member and connected parties have control over it.

The SSAS’s “sponsoring employer” loan facility is its BIG PLUS. The SSAS can loan the “sponsoring employer” (e.g. the company that runs the trust) up to 50% of the funds held by the trust at nominal interest. The loan must directly benefit the business, meaning it can be used to help fund buying new plant or equipment or for purchasing and/or developing the business premises.

Warning: there could be a tax charge if the transaction isn’t properly administrated.

A Self-Invested Personal Pension, or SIPP, is a UK government-approved scheme and therefore allows individuals to make their own investment decisions from the full range of investments approved by HMRC

The SSAS administrator must enrol the scheme with HMRC before registering the SSAS with the Pensions regulator. SSAS funds must be paid into a scheme bank account. The trust fund is ring-fenced from the company and is fully protected from other SSAS members and creditors or scams.

SIPPs offer up to 45% tax relief on contributions and there is no UK Capital Gains Tax (CGT) or Income Tax to pay. The tax benefits will depend on individual circumstances and the tax rules relating to SIPPs are subject to change by the government.

The SSAS attracts similar tax advantages as a SIPP with one BIG added advantage of some great tax-planning strategies attached to it, such as using it as a family trust through which to pass on property and liquid assets.

Further, the trust can grow by charging the company rent if it owns the business premises. This means that the SSAS grows to the benefit of the trustees, but also that the business – the “sponsoring employer” – reduces the company’s corporation tax liability at the same time.

Each member holds specific investments or shares, but individuals are not fully in charge of where they can make investments as the master trust covers every member.

The SSAS can invest up to 5% of the scheme assets in shares of any sponsoring employer. Shares in “sponsoring companies” can be bought up to 20% of the SSAS fund.

The SSAS has a similar investment flexibility to a SIPP, but normally provides better value in terms of administrative costs. SSAS investments are held for all members jointly. As members can invite children to join the SSAS this is one way to pass on assets through the generations.

No compensation body, but the rules governing the set-up, administration and restrictions of SSAS are quite stringent and this makes them quite secure.

The SIPP attracts several costs: first if four people were going to purchase a commercial building among for SIPPS, then there would be four SIPP registration fees and then four sets of legal bills for the purchase.

In the same circumstances if the SSAS wants to purchase commercial property, it attracts one set of legal costs. And to set it up there is only one registration fee. The SSAS should be administrated by a “Professional “Administrator”, a professional trustee or an Accountant with expert knowledge of the UK tax system, is essential.