SIPPs & SSASs
SIPP (Self Invested Personal Pension Scheme) or SSAS (Small Self Administered Scheme) are becoming increasingly popular and commercial property is often acquired by a SIPP or SSAS
What exactly are they?
A SSAS is a small occupational pension scheme that is set up by the directors of a business that want more control over the investment decisions relating to their pensions and in particular, to use their pension plans to invest in the business. As such, each member of the SSAS is usually a trustee.
The following are features of a SSAS:
- occupational pension scheme,
- members are usually employees or directors of the sponsoring employer,
- there is no limit on the number of members but, as the name suggests, these schemes tend to be relatively small,
- Each member has a notional share of the SSAS funds including non-insured assets such as property and possibly insured money held in a trustee investment plan.
A SIPP is a personal pension plan set up by an insurance company or specialist SIPP operator where the member has greater control over the investments. Anyone can take out a SIPP providing they meet the provider's eligibility requirements. These are usually based on a minimum fund size because of the higher costs involved in running a SIPP compared to a standard personal pension. Other features include:
- personal pension plan,
- the option to invest in both non-insured assets such as unit trusts and property and insured assets such as a trustee investment plan,
- Member's employer can contribute to the pension plan and may operate payroll deduction on the member's behalf.
SSAS versus SIPP
What's the difference between a Small Self-Administered Scheme (SSAS) and a Self-Invested Personal Pension (SIPP)? Well, not as much as you may think. They're both regulated in the same way and in the eyes of HM Revenue and Customs (HMRC); they're both investment regulated pension schemes, which means that the basic rules surrounding borrowing, lending and investment are exactly the same for both.
So does that mean we can forget all about the distinctions between the two? Well, unfortunately no.
A SSAS has more flexibility than a SIPP when it comes to investment. This is because current legislation allows investments to be made in the sponsoring employer. A SIPP doesn't have a sponsoring employer (although any employer can contribute to it) but a SSAS does. This, therefore, allows the SSAS to invest in the company. Let's have a closer look at the investment differences between a SSAS and a SIPP:
|SSAS can lend money to sponsoring employers.||Loans are not allowed to any members or any person/company connected to the member. Any such loan made by a SIPP would be an unauthorised payment.|
|Can invest up to 5% of the fund value in the shares of the sponsoring company.||A SIPP doesn't have a sponsoring employer so can theoretically invest up to 100% of the fund in the shares of any company, including one run by the member.|
|Can buy shares in more than one sponsoring employer so long as the total market value at the time the shares are bought is less than 20% of the total value of the scheme.||If the company involved is controlled by the SIPP member or an associated person, investment in that company would be regarded as investing in taxable property.|
|SSAS can potentially own 100% of a company's shares so long as the value doesn't exceed 5% of the value of the SSAS.||A SIPP can potentially own 100% of a company's shares so long as the company is not controlled by the member, and this is acceptable to the SIPP provider.|
If either a SSAS or a SIPP directly or indirectly acquires taxable property, an unauthorised tax payment on the member will apply. In addition, the scheme administrator will be liable to a scheme sanction charge both on income from the taxable assets and capital gains on their disposal. This effectively means that it's not possible for SIPPs to invest in a company controlled by a member as virtually every purchase made by that company would be an unauthorised payment
Our specialist commercial property solicitors have extensive experience in dealing with both the business owner and pension providers in the acquisition and disposal of commercial property and can work on a fixed fee basis.
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