What are the benefits of holding commercial property in a SSAS?

A Small Self-Administered Scheme (SSAS) is a UK-registered pension scheme designed for business owners, allowing them to invest in assets like commercial property. Utilising SSAS software can smooth the management of these investments, ensuring compliance and efficiency.

Why you might wonder, is it more advantageous to buy commercial property through an SSAS rather than invest personally, or buy it through a limited company or individually invested self-invested personal pensions (SIPPs)?

There are three main reasons why SSAS trusts are attractive: income tax and inheritance tax benefits, and security of the asset(s).

A slight dampener is that Capital Gains Tax and Stamp Duty, and Land Tax are legitimate concerns, but still, SSAS is worth looking into for all owner-managed limited companies. Here are five reasons why:

1. Ownership

In order to attract the exemption under the Pension Acts and Department of Work and Pensions legislation, all SSAS members are trustees and all decisions on investments must be agreed unanimously. Investments are held severally in the name of all trustees and no specific asset can be allocated to any one member.

2. Simplifies matters (more than a SIPP)

Ownership of commercial property in a SSAS is more straightforward than owning property between three or four self-invested personal pensions (SIPPs). With SSAS there is only one registration and legal costs will be less.

3. A tax planning opportunity ? joining family members

The SSAS can be used as a family trust with children and other beneficiaries as members. Directors of a company who are members of the SSAS can enrol family members in the scheme irrespective of their employment status providing it was established by a company for the benefit of one of its employees.

4. Protected

No one can predict the future or know what the economic climate will be in the next five, ten or fifteen years. Securing assets long-term for the future is a wise investment. As the SSAS is a trust, assets held within it are free from any creditors’ claims.

5. Capital Gains Tax Benefits

As the SSAS is a tax-free environment, some trusts capitalise on the “latent value” of commercial property by gaining planning permission or developing the site.

6. Corporation Tax Benefits

There are two big advantages:

• Commercial property moved from a company into a SSAS via an in-specie contribution is an allowable expense, and could remove all liability for corporation tax in the year of the transaction if the contribution exceeds the company’s profit in that year, which that could be rolled back to the previous year to create a corporation tax refund. But this must be carried out to the letter to avoid being taxed on the investment because you don’t meet the conditions.
• The limited company pays rent to the SSAS and this is an allowable expense.

7. Personal Tax Benefits

If the property is moved into the SSAS, the rent from it will not be taxed as it would if the property was owned by the company or a director. The rent from the company to the SSAS will increase the members’ pension fund; then after age fifty-five, members can draw from it, receiving the first 25 per cent tax-free.

Investing in Commercial Property with SSAS and SIPP

Many business owners and investors use SSAS software and self invested personal pension commercial property strategies to purchase or hold business premises. Both SSAS and SIPP allow investment in commercial property, offering tax benefits and flexibility.

For example, rental income received by the pension is free from UK income tax, and any growth in property value is exempt from Capital Gains Tax. Using property SIPP pension options can also help release equity from existing assets or facilitate business expansion.

Connected Party Transactions

SSAS and SIPP schemes allow the purchase of commercial property from a connected party, such as the member or their business.

However, these transactions must occur at market value, supported by an independent valuation, to comply with HMRC regulations. This feature enables business owners to release equity from existing properties while enjoying the tax advantages of pension schemes.

Joint Property Purchases

SSAS and SIPP schemes can jointly purchase commercial property with other parties, including other pension schemes or individuals. This flexibility allows for larger investments and diversification of pension assets.

Each party’s share of the property is proportionate to their investment, and all income and expenses are split accordingly.

Tax Advantages of Holding Property in SSAS

Investing in commercial property through SSAS or SIPP offers several tax benefits:

• Rental income is received tax-free within the pension scheme.
• No Capital Gains Tax is payable on the sale of the property.
• Property assets are generally outside the member’s estate for Inheritance Tax purposes.
• Assets are protected from creditors in the event of business failure or personal bankruptcy.

Borrowing Limits for Property Purchase

SSAS and SIPP schemes can borrow up to 50% of the net value of the pension fund to assist with the purchase of commercial property.

For example, if the pension fund is valued at £200,000, the scheme can borrow an additional £100,000, allowing for a total investment of £300,000. This borrowing capacity enables members to acquire higher-value properties within their pension schemes.

Are you interested in moving commercial property to a SSAS?

Setting up a SSAS can be an excellent pension- and tax-planning strategy, which can help your pension fund as much as your business. Please get in touch to find out more.

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