Tax-Free Weath
By SSAS Expert Paul Barry
Sophie: Today we have Paul Berry joining us from his company SSAS consultant to tell us a little bit about the financial service that his company provides. Thanks for joining us today, Paul, it’s great to have you.
Paul: Thank you.
Sophie: For people who may not met you before it. Would you be able to tell us a bit about your background?
Paul: Yeah, I have worked in financial services for 30 plus years and had the pleasure of working for the bank of Scotland when I first started work. I became a financial advisor at the bank and dealt with a whole range of high net worth clients over the years. I specialised in SSAS pensions and more complex pension structures hence my specialism now in SSAS.
Sophie: So Paul, can you tell me about what a SSAS is?
Paul: I can so I SSAS stands for Small Self-Administered Scheme, and it’s a pension scheme that HMRC designed for business owners many years ago. For SME owners, so businesses up to a certain scale. And it’s designed to give those business owners ability to do more than an individual to advance their business and to help a pension all at the same time.
Sophie: So Who would have a SSAS suit?
Paul: SSAS is for someone who runs a business of a certain scale, so someone who has a business, a limited company or a limited liability partnership who has been trading as an active trading business who is keen to do more with that business and their pension and try to fit the two together, and that’s my job, to try and understand where those points are. So essentially is for people with their own business, be it a limited company or a partnership.
Sophie: So can you tell us a little bit about your role with SSAS consultant?
Paul: So I am self-employed with SSAS consultants, SSAS consultants is my own business. The focus of what I do with that is to work one-to-one with business owners and to be a business owner myself is the natural thing to relate to other people. The role I undertake there is really quite simple. I engage with people such as yourself and understand just your circumstances. Relate that to SSAS and how it might work with you and then guide you through the process and to hold your hand right through the process to make sure that the SSAS is right, we set it up, and you start to use it effectively after that.
Sophie: What would people typically use a SSAS for?
Paul: So a whole variety of things. The most typical uses I see are people who have a profitable business, and they’re trying to mitigate some tax in a tax-efficient manner, and SSAS is a brilliant tool for that. It can accommodate much more contribution from a business than say a personal pension can. It can help people who are wanting to raise capital to assist a business. It might be an active trading business to acquire stock or employ people or to buy an asset. It could be if you’re a property business, to help you buy more properties, deposits or to do flips. Whatever that may be, and it can be used to protect assets, so if you already own an asset, you can transfer that into the SSAS. If you have a lot of cash in your business, you can transfer it into the SSAS. The reason you might want to do that is that if there’s value transferred from the business to the SSAS, then if it ends up in the SSAS there’s no risk that someone can sue you or litigate against you and the value is protected within it. People can also use SSAS for a family trust. So if you want to cascade wealth for your family, which most people do, then a SSAS in a brilliant tool for that. It can be used for a real wide variety of purposes, and my role really is to work with business owners to understand what that might mean for them, and then plug in the benefits where they’re best suited.
Sophie: So how does a SSAS differ from pensions that people would typically be familiar with?
Paul: Yes, that’s a good question and a good point actually. Most people don’t really understand the differences between different pension types. So a SSAS as what is regarded as an occupational pension scheme which is governed by a whole set of different rules, a different regulator from a personal pension most people would be familiar with. What that essentially means is that the SSAS has got more flexibility more capability and that the definition of it from a users perspective is that it’s described as a member-directed pension scheme, which really means that you as a member or the trustee have full control of that pension. No one is telling you what you must do with it or how it will be invested or how it’s to be structured. That is entirely down to you, and that’s why people particularly business owners love the concept of a SSAS because you can do what you want to do according to your objectives and circumstances and really get to that point in a much more structured way.
Sophie: So, why have many people not heard of a SSAS?
Paul: I hear that every day of every working week, where people usually say to me, “oh it sounds too good to be true” or “why haven’t I heard of it before?” and people are sceptical because they don’t know about something, and I totally understand that. The main reasons or the main reason is that SSAS is not a retail product, so people will not have seen that in a financial services office or an insurance company. It’s not something that’s typically made available to the general public, because it isn’t for the general public. SSAS is specifically for small business owners.
Where people should have heard of it, is from their financial adviser or from their accountant. There are reasons why even in those circumstances, financial advisers aren’t massively familiar with SSAS because it’s a little bit different from what they’re normally used to. Accountants should definitely know about SSAS, but to be fair to accountants, it’s not really in their realm to provide what they think is financial advice. My view of SSAS is that from the accountants’ point of view there’s a massive tax planning tool within it that accountants should have an awareness of, but it’s not really in their realm to be talking about that sort of thing with our clients. There’s a large knowledge gap there for sure, and I have a job to do to fill that gap. It’s certainly enlightening for people when they discover what a SSAS can do, and they haven’t heard about it. There can be a bit of frustration there: I keep people calm and explain the benefits, and let them access it.
Sophie: So you mentioned being able to access capital from the SSAS. How would that work, and how could people use that?
Paul: So SSAS has the ability for the pension to lend money to what’s called a sponsoring employer. Essentially, if it’s my SSAS my pension money lending to my business, HMRC have provided a facility that allows SSAS to lend of the 50% of its value. So for simplicity, if you have a hundred thousand pounds, you could lend fifty thousand pounds back to your business, and that can be used for any commercial purpose that you want that money for. For example, to buy more stock for business, to buy an asset for the business, or to buy property (a deposit for a buy to let property). Anything that would help your business to grow and to succeed. In addition, while you are doing that, it gives your pension a return, because you in that context are the lender from your pension and the borrow from your business, so you set the rules and returns around that. It’s a fantastic tool if people understand how you can really benefit from using that.
Sophie: So people can loan 50% of the value of their SSAS to their own business. What can they do with the other 50%?
Paul: That is a common question. People get excited about loaning 50% to their own business and not forget, but they sort of discover that there’s another 50% sitting there that they should be using or engaging. There’s a variety of things you can do with it, principally you can do anything you want to do with it provided it fits with HMRC regulations, which is to invest in anything that is HMRC approved. Most commonly though people have used the ability for the SSAS to lend money to a third party business, so a very similar process to lending it to your own company you can lend it to somebody else’s. In the context of a property business that might mean lending it to someone who’s like-minded who’s doing another project that you can’t do, but your SSAS and yourself get all benefit from that process. You’re lending money to their project, so you set the returns, you manage the process (or the SSAS trustee will do all that work for you), so it’s a great way to access other opportunities that you couldn’t or wouldn’t have the ability to do with your own SSAS.
Sophie: So, you talked a little bit about the tax benefits of a SSAS. What would be involved with the tax benefits of a SSAS?
Paul: Loads of things. That is a huge thing, but I will cover it briefly. Primarily or principally the SSAS is a pension so that that gives it essentially a tax-free status. HMRC allow that structure to have no tax payable within it, and the allowances to get money into it. So for a business, if you’re making a profit and want to contribute money to the SSAS, then any contribution and every contribution you make to it is tax allowable, which means that you’ll save corporation tax on every pound that you pay into it. For simplicity, for £100,000 you pay in you’ll save £19,000 of tax by doing that, so you’ve initially made a 19 % return over and above what you would have done if the money was just sitting in the company. The pension is tax-free, so any investment you make within that structure will pay no capital gains tax or corporation tax within the structure, so if you loan money to your business (or a third party business) as we just mentioned, the return you make they will have no tax people on it. And if you had borrowed money for your own business and were paying it back that payment is also tax allowable back to the SSAS, which is an interesting little quirk over in the structure. And then within the structure beyond that, the SSAS allows for essentially a long-term enduring family trust, there’s a brilliant ability for the SSAS to pass wealth. You can cascade that wealth your family in a very very tax-efficient manner so that an event of one person’s death the value will cascade to the remaining people within the SSAS, which means there is no inheritance tax to be paid at that time. For some people, this is a huge thing, and the ability to cascade that wealth is powerful for most people.
Sophie: So – How much can a business pay into a SSAS?
Paul: Most people are unfamiliar with SSAS, and as I mentioned, accountants’ and financial advisors not being familiar really of a SSAS and all the abilities and regulations. So most people are professionals included, assume that the maximum you can pay into a SSAS or any pension is £40,000 per annum. That in its-self, to be fair, is a decent amount of money and from a business that’s lucrative and productive to do that, however, a SSAS very differently to other structures allows you to pay up to £500,000 per annum, which for a business which is making a profit of more than £40,000 is hugely significant. Say you’re making a proof of £200,000 a year, and you wanted to pay that into the SSAS, then that contribution will go from the business directly into the SSAS with no tax to pay, so immediately saving that business £38,000 in tax. And they can do that every year. For most businesses, that is a revelation and for pretty much all accountants’ that is breaking news. Most don’t actually understand that or believe it, which is always a challenge. I can assure you that these are HMRC rules: it’s not something that I’ve created or somebody else thought was a great idea. Half a million pounds is the annual contribution, but in actual fact, you can put up to two million pounds into it at one point and have the tax relief spread over up to 3 years. That would be if you had a particular project or a particularly good year you can do up to that value. The ability for the SSAS to have contributions of that level is significant and is usually a bit of a ground-breaking moment for most business owners.
Sophie: Are there any risks associated with a SSAS?
Paul: Good question. The SSAS its-self by design doesn’t bring risk to the equation if you like because the SSAS structure is different to most pension structures people are familiar with, whereby traditionally you would put money into a pension and the pension provider would take that money from you (like Standard Life) and invest it on your behalf within their own structures. SSAS does not have that investment part as the inherent part of the design of it. So what that means is if you pay money into the SSAS, you will determine where that is invested. SSAS itself doesn’t bring investment risk beyond what you choose to invest within, and that is entirely your own decision and your own time. The structure itself has no risk associated with it. It’s an HMRC approved structure. Each SSAS is singularly and individually approved by HMRC before it exists, so it’s been given the green light. Each SSAS is given its own pension scheme tax reference number, so it exists as it’s own entity in its own right. There is no risk that SSAS brings that you can’t control or manage for yourself.
Sophie: What are the costs involved with setting up and running a SSAS?
Paul: The SSAS has an initial fee be able to essentially get the structure initially set up, for the time it takes to consult on it until understand the best uses and objectives for it. It’s a one-off fee, and it varies depending on how many people are in the SSAS and what your plans are, and the time taken and all sorts of other factors. Thereafter there’s a charge to run the SSAS on an annual basis. Those challenges are payable for the administration and trustee work that’s carried out for every SSAS, and that work is typically compliance in HMRC reporting and all the sort of complex boring bits that people really don’t want to get involved with and that’s all handled on behalf of the SSAS members for the SSAS. There are ad-hoc fees that will come along, so for example if you’re buying commercial property there will be fees involved in that process as it would be anyway if you’re buying a property, or if you were taking a loan back for example in the SSAS that are admin fees that will come into that process. These are not exorbitant fees at all; they’re just part and parcel of the process of running a pension scheme.
Sophie: Are all SSAS providers the same?
Paul: No, short answer. There are a variety of SSAS providers in the UK: probably 30-35 providers, I have not counted them, but I know there is not a lot of them. SSAS, as a market, is quite restricted so there’s probably something like 40,000 SSASs in the UK which is really a tiny market compared to some other pension structures such as SIPP. There are about six or seven million SIPP pensions in the UK, which is a massive scale of operation, but SSAS isn’t quite the same. SSAS providers tend to be more niche and work in very different ways. A SSAS has a variety of service types ranging from practitioner to administrator to trustee, and each of those offers of varying level of service and each of those has a varying level of responsibility for the person who’s SSAS that is. Our view of that as a consultancy business is that as a business owner, you really don’t want to become a pension scheme owner or an administrator. That’s not why you started a business. Our view of it is we provide you with the highest levels of protection and service so that you engage with the SSAS and the people involved with it; to do what you want to do with it rather than worry about not to complying with regulation or reporting to HMRC. There are some risks in the process if you don’t understand what the level of service is. We talked about risk a little bit earlier: this isn’t a risk in terms of losing money or investments, it’s more about the risk you could embark upon if you don’t know what you’re doing with it, and if you don’t understand what level of service that the provider has given to you. It’s a very misunderstood point, and I’d be happy to discuss that with anybody, but I can summarize that in more detail, but we do need to be aware of the different level of service that are available.
Sophie: That’s one thing I probably one thing I wasn’t aware of – what your service is offering is actually kind of a hands-free service and that you would take care of your clients to make sure that they are aware of the exact rules of HMRC, and provide the guidance to make sure that no rules are broken, because I guess when rules of a SSAS are broken HMRC are very quick to chase up what’s going on and obviously there will be tax implications there for rule-breaking.
Paul: Absolutely. That is the bit people need to be aware of and need to understand the service that they have embarked upon will mitigate those risks. I have had clients in the past who have used other services that didn’t know that. If people embark upon that course of choosing the wrong service, they can change that structure; it’s not terminal. It’s not something that they can’t alter to get a better place, but it’s important before you start that process you understand what the service is. I often make a comparison to people that if you are familiar with property, if you own for example a buy-to-let property you may engage with a letting agent to find you a tenant, but not manage your property, so in this context it’s like that to an extent where our service is a fully managed tenant find, all documentation/all compliance/all engagement/all rent collection is what we do. We engage the full process to take that risk out of it for the SSAS and trustee members. You could, however, just use that business just to find your tenant and then you have all the work and all the rest to do thereafter, that’s the sort of differences that can be around in the market if you’re not familiar with what you’re actually buying into.
Sophie: That’s a really good comparison actually because I think a lot of people that would be looking into a SSAS would look for SSAS services nearby them, and there an overwhelming amount of information when they first find out about SSAS. It’d be very easy to jump at the first opportunity to take on a SSAS, but without fully investigating what services are provided by each a SSAS company, you could find yourself doing a lot of legwork for trying to get the benefits of a SSAS.
Paul: Yeah, absolutely. I had a client recently actually with that sort of comparison. He had embarked upon a certain course with a big national provider, and he discovered that they offered the very lowest level of service when the annual charges were incredibly over four times the charges we would apply to provide the very highest level of service.
I think that is unpalatable, as a polite way of putting it. I think that’s shocking, but he didn’t know the difference because how would you know the difference quite frankly. It’s something really to be aware of, and my job really is to consult with you to understand your circumstances, so you really do know what you’re doing before we start down that road. It’s an important point actually, and I’ll mention it now: SSAS is not for everybody, and it’s not a one-size-fits-all, it’s not a ‘turn up, and you’ll get one’. That’s not how it works at all. My feeling on that is that I will rather tell you not to go for a SSAS than to go for it, if you just aren’t in the place to make it work for you, because quite frankly it’ll cost you money and time, and me, and that’s not how this process work. It’s not a sales process, its a consultative advisory process and it must be right for the people who are engaged in it.
Sophie: I think that’s important as a professional if you are providing a service you are able to see where it’s going to work for someone and where it’s not going to work for someone and be able to guide them to make that decision ‘is SSAS right for me or actually a SSAS maybe not the perfect outcome for me’, and then people can be referred on for other services that may be more appropriate for them like a SIPP for example might be more appropriate for some people. So it’s good to have that reassurance that it’s not a sales process, it’s finding something that’s going to work perfectly for a business and an individual.
Paul: And that’s exactly it. I’d rather have the credibility of working with someone who believed that what they were getting was good advice, which is what they will get naturally, but even in that process I’ve done that in a few cases recently where that individual or business has figured that it’s not right for them and we figure put together that it’s not right for them, but I’ve still managed to find ways to make it work for other people that they know. That can have great value in the world even just from a karma perspective, feel like they’ve done a good deed for someone else, and it’ll come back at some point in time, and that works really well and that’s how I prefer to work with people, that’s the best way to be.
Sophie: Where do you fit into the process, Paul?
Paul: My role is to directly engage with people who could have a business, who are interested in SSAS and relate their circumstances currently to what the SSAS might be able to do for them and to work out a strategy that is going to benefit them. Primarily to figure out if it will benefit them, it usually does, but we mentioned this two seconds ago, and then to engage with them to set the SSAS up: go through the process of all the boring paperwork and engagement with the trustees and/or professional trustees, then HMRC in the approval process. When the SSAS has been approved by HMRC, we then take the machinery so to speak to actually engage it in a process that then actually does things for them as opposed to the theory of doing it; it’s actually getting the SSAS working and moving for them.
Sophie: Thank you very much for joining us today, Paul! It’s been really informative, and it’s been great to hear a bit more about SSAS and how it can benefit business owners.
Paul: Thank you very much. I appreciate your time.
Sophie: If you’d like to find out more about a SSAS and how it could benefit you, there’s going to be a link below this video that you can click to book a call with Paul through Calendly to find out more.
*SSAS is an Occupational Pension Scheme type, intended for UK Business Owners. SSAS is regulated by The Pension Regulator (TPR). SSAS Rules are determined by HMRC. Each SSAS is individually approved by HMRC. SSAS Pension is not a product that is regulated by The Financial Conduct Authority (FCA). Investments within a SSAS may be regulated by the FCA depending on the SSAS Members / member Trustees own investment choices. Neither SSAS Consultants nor the SSAS Administrators and Trustees that we work with are regulated to provide FCA regulated Investment or Pension Transfer Financial Advice and do not imply that we can. We have no mandate, influence, control, ownership or interest in the choice of investments within any SSAS. This video is intended for information only and is in no way intended to confers or imply any financial advice.
