The Family SSAS
Flexible, tax efficient family trust
The Family SSAS is a fantastic way to ensure ultimate tax efficiency. If the plan is to build the legacy, then a SSAS is a fantastic tool, for accruing assets and securing them for future generations.
Protecting family businesses and securing family wealth in a tax efficient wrapper.
What is a Family SSAS?
A Family SSAS is a family pension trust, independently established for the benefit of its members. Members of the trust can be family members or also company members. The SSAS is a corporate pension and so regulated by HMRC and The Pensions Regulator, enjoying the same benefits as traditional benefits, plus much more. The Family SSAS pension is controlled by its members and so all investment decisions are at the discretion of the members of the SSAS. In the case of the Family SSAS, this means that the family is responsible for the fund and how the funds are invested. It also means that family assets, such as property and land, can be secured within the SSAS to ensure a legacy for generations to come. For families and small businesses, the Family SSAS is the ideal vehicle for wealth protection and succession purposes.
How does a Family SSAS work?
A Family SSAS must initially be established by a company director and registered with HMRC. Once established, other family members or key company employees may also be invited to join the trust, making it the perfect tool for family run businesses. The Family SSAS may have up to 11 members, who may also transfer in their pension funds if they wish to, creating a larger pooled pot. Members retain the percentage portion of the pot that they put in, as the pot grows. Funds may be invested at the discretion of the members.
Flexibility & control
The Family SSAS is a unique and flexible pension with a very wide range of investment choices. Examples of popular Family SSAS investments include: the family business, commercial property, land, indirectly in residential property, unquoted shares, gilts and bonds, and a much wider range of investment than usually available within traditional pension funds.
The Family SSAS is an asset that can be passed down through the generations and wealth secured.
What does a Family SSAS mean for you?
- Much more flexibility & control than the traditional pension and retirement planning methods
- Members retain their own portion of the fund and nominate their own beneficiaries
- Unlike traditional pensions, the Family SSAS can be passed down through the generations
- All in one trust for investment, security and succession purposes, making it easier to manage and more tax efficient, with increasing growth opportunity and reach
- For family businesses, this adds additional security, flexibility and continuity possibilities, supporting the business as well as the family and member retirement plans
- Cheaper, faster and simpler to manage ownership
- Control over investment choices, which is beneficial both to the family and the business
- The Family SSAS can invest in property, transfer assets and sell assets. This is particularly useful in the case of family businesses, property and land investment and ownership
- Offers the ability to pool pensions for greater investment choice and reach and increased growth potential for all members
An example of an efficient Family SSAS strategy:
Background
John and his wife, Jean, are proprietors of a successful company. They have two sons, Tom and Tim, and are focused on planning for their retirement whilst ensuring a seamless transition of the business to their sons.
Strategic Actions:
Utilising a Small Self-Administered Scheme (SSAS):
- Property Transfer: John and Jean decide to sell their business premises to their SSAS. The company then pays rent to the SSAS for the use of the premises. This rent is considered an allowable business expense, providing tax benefits, and the income received by the SSAS is exempt from income tax, facilitating the growth of the SSAS (i.e. pension funds).
- Profit Reduction: The rental payments reduce the company’s taxable profits, thereby decreasing the year-end tax liability.
- Family Asset Growth: Funds are effectively transferred from the business to the SSAS, ensuring that assets remain within the family.
Involving the Next Generation:
- SSAS Membership: John and Jean invite Tom and Tim to join the SSAS. This inclusion allows for shared decision-making and prepares the sons for future business responsibilities.
- Retirement Planning: Pension Drawdown: Upon retirement, John and Jean opt to draw 25% of their pension fund tax-free, spreading withdrawals over several years to optimise tax efficiency and preserve funds within the SSAS.
- Funding Retirement Benefits: The rent received by the SSAS provides cash flow to support John and Jean’s retirement benefits as needed.
Enhancing the SSAS Fund:
- Additional Contributions: With John and Jean no longer drawing salaries, the company reallocates funds to make additional contributions into the SSAS on behalf of Tom and Tim, promoting the growth of the pension fund.
- Asset Appreciation: The business premises, now owned by the SSAS, appreciate in value, further increasing the fund’s worth. If the property is sold, the proceeds are free from capital gains tax.
Consideration of Inheritance Tax (IHT) Changes:
Recent legislative changes, brought in by the UK April budget in 2024 and fully effective from April 2027, have impacted the IHT landscape, specifically relating to SSAS pension schemes. Previously, SSAS benefits could be passed to beneficiaries free from IHT. Under the new rules however, death benefits from SSAS will form part of an individual’s estate for IHT purposes. However, speak to our advisers as there are plenty of strategies that can be integrated to overcome these new challenges.
Alternative Strategy: Establishing a Family Investment Company (FIC):
In light of the new IHT implications for SSAS, John and Jean consider establishing a Family Investment Company (FIC) as a complementary strategy, in addition to the SSAS.
Structure and Benefits:
- Company Formation: A FIC is a private limited company where family members are shareholders. John and Jean can transfer assets into the FIC, such as cash or investments, in exchange for shares.
- Control and Flexibility: As directors, John and Jean retain control over the company’s operations and investment decisions, while gradually passing economic value to Tom and Tim through share distribution.
- Tax Efficiency: The FIC structure allows for potential mitigation of IHT, as growth in the value of the company can be attributed to shares held by the next generation, reducing the taxable estate of the parents. Additionally, corporation tax rates on retained profits within the FIC are generally lower than personal income tax rates.
Conclusion:
By adapting their succession and retirement planning strategies to account for recent IHT changes, John and Jean can effectively manage their estate’s tax liabilities. The establishment of a Family Investment Company offers a viable alternative to the SSAS, providing control, flexibility, and tax efficiency in passing wealth to future generations. It is essential to consult with experienced advisers to tailor these strategies to specific circumstances and ensure compliance with current tax laws.
This is just one example of how the Family SSAS can be used for succession planning, whilst still providing retirement benefits and business growth.
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