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SSAS option sidesteps Sipp environmental risk problem

by Andrew Roberts on Feb 21, 2013 at 15:29

SSAS option sidesteps Sipp environmental risk problem

Client Gary Jones, owner of Jones Coach Tours, mentions his coach tour company has a short-term cashflow problem because his bank is reducing his credit line.

The company operates from its own premises, an office with a coach park attached. Jones has decent pension savings and wants to explore transferring his pension funds to a Sipp, which would buy his company’s premises. This would release cash to the company and give Jones’s pension an income-producing asset.

But there is a snag: the coach park is built on the site of an old petrol station and because of the associated environmental issues it is difficult to find a Sipp operator that would take on the property.

Setting up a SSAS

However, an adviser could set up a SSAS for Jones that would take on property just like a Sipp. With Jones Coach Tours acting as the sole trustee of the SSAS, there is no third party that would be concerned with taking on the environmental risk.  

The SSAS could then lease the property back to Jones Tours at a commercial rent, payable to the SSAS. Rental income and capital gains within a SSAS are tax exempt.

Normally it would be worth using the SSAS to lend half of its value secured on the premises. This saves stamp duty land tax and avoids crystallising any capital gains. However, since the client needs to release the full value of the property, this is not an option.

When making this recommendation, an adviser needs to tell the client that:

  • An independent valuation of the property must be obtained prior to purchase.
  • The property will be an asset of the scheme and creditors will not have access to it.
  • All property purchases and any lease arrangement must be on a commercial basis.
  • Any non-payment of rent or loan interest will adversely affect him in retirement.

Jones Tours can later contribute to the SSAS for Jones’s son as part of a succession planning exercise. The contributions can be used to build up cash in the SSAS to provide Jones with his retirement lump sum, and eventually the whole property will be allocated in the SSAS for his son.

Andrew Roberts is a partner at Barnett Waddingham.

6 comments so far. Why not have your say?

MEF

Feb 21, 2013 at 17:05

The SSAS could also offer a loan to the company secured against any company asset, not just commercial property. A much simpler exercise for short term finance.

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Vasco de Gama

Feb 22, 2013 at 09:54

Sole Trustee to a SSAS. Interesting concept..

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Man in Black

Feb 22, 2013 at 11:41

@Vasco

I'd be interested in your reasons for querying this?

I admit I prefer the 'Employer + Member-Directors as Trustees' approach but...

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Vasco de Gama

Feb 22, 2013 at 12:49

Man in Black

Just that it suggests that the if Coach Tours are sole trustee, then the member wouldn't be. Presume this opens the scheme up to Pensions Act requirements and connected party problems as all Members are not Trustees? Why would you not have the Member as a Trustee? Not seem a SSAS trust deed that allows only one Trustee anyway.

Also interesting to see the Chairman of AMPS promoting and suggesting operating a SSAS without the need for a Professional Trustee. Didn't know that BW offered an admin only service.

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Man in Black

Feb 22, 2013 at 13:05

The requirement for all members to be Trustees for it to be a SSAS kind of went a while back...

...interestingly, since the abolition of Pensioneer Trustees, a lot of these firms seem to be retreating to acting as an admin subcontractor...

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Andrew Roberts

Feb 22, 2013 at 20:59

Three points here about the trustee issue: an alternative to all members being trustees is that all members are directors of a company that acts as trustee. Hence the SSAS remains exempt as usual.

The second point is whilst a professional trustee is usually recommended, because you do not have to have one, you can side-step the concerns that a non-beneficial trustee might have in taking on slightly riskier environmental aspects by acting without one. If you have a professional trustee they may turn down that risk even with insurance. For a client happy with that risk to begin with, this is a solution.

The third is that you can have a sole corporate trustee for a trust but not a sole individual.

The member could be a trustee, but he would need a second trustee, which means that second trustee would have liability for the building (and not all liabilities can be restricted).

Most (or all) of the AMPS member SSAS firms will provide practitioner role to SSASs though most (or all) would advise against it as the temptation for the members to go off and do something without checking can be too great.

Hope that helps, thanks for commenting. I designed it to be an interesting case study rather than the usual leaseback or loanback.

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