Your SSAS pension provides more opportunities than you may think
Did you know that current pension regulations allow you to purchase unquoted shares, both in UK and in overseas companies, through your company pension scheme? Making your small, self-administered pension schemes (SSAS) a vehicle that can fund any share purchases you may currently be considering.
However, these investments are not as straightforward as normal share purchases and come with various restrictions. Which is why it’s so important that you seek professional advice from a suitably qualified and regulated financial adviser.
Things you really need to consider
Investing in the stock market can be a volatile experience, especially if you are relatively new to the concept. So with something as critically important as your company’s pension scheme, there are some understandable restrictions in place.
If you are considering purchasing shares via your SSAS, then the first thing I would implore you to do, is to get proper advice; as a qualified expert will be able to steer you through the technicalities of bringing your share purchase to fruition and ensuring that you comply with the various rules and regulations associated with SSAS share purchases.
In order to give you an insight into how investing with your SSAS could work, I’ve written this blog. However – it is to be viewed as a guide only.
What to invest in
Under the pension taxation legislation, your SSAS can make investments across the board. Please make sure you pick the right investments though, or there will be a large and very unwelcome tax consequence of investing in certain areas or where specific limits are breached.
As a general rule, investment in the following areas will not incur a penal tax charge:
- Investment grade gold bullion
- Trustee Investment Plans and Bonds
- Commercial property (including hotels) and land
- Unit Trusts/OEICS
- Bank and Building Society Deposit Accounts
- Stocks and shares
- Executive Pension Plans
- Loans to the sponsoring company
It’s also worth noting that Trustees can borrow up to 50% of the net total asset value of the SSAS to assist with any property purchases or cash flow requirement (see my previous blogs).
At the time of purchase the market value of the shares must be below:
- 5% of the market value of the scheme’s total assets in any one sponsoring employer
- Or 20% of the market value of the scheme’s total assets where the shareholdings relate to more than one sponsoring employer
- There are also limits on the total value of shareholdings that an occupational scheme can purchase.
Purchasing the shares
When buying the shares, the SSAS Trustees must ensure:
- That the member(s) must have consulted with, and received advice, regarding the share purchase from a regulated financial adviser
- If the shares are being purchased from or issued by a connected party (for example: a members of the scheme, their relatives, civil partners, a company controlled by someone significant to a member of the SSAS), then a professional valuation of the current market price of the shares should be obtained by the Trustees of the pension scheme. This must be provided before any purchases take place. The company’s auditor, or any other qualified person, can supply the valuations and they must be provided in writing.
It’s important that your investments provide a dividend, as if the shares you’ve purchased don’t provide an income or increase in value, then HMRC may deem them to be an unsuitable investment for your SSAS pension scheme.
The payment of dividends can also bring its own complications, as when the company declares a dividend, it must pay its shareholders. Dividend payments also need to go to the pension scheme, so the company should also issue a cheque for the net amount of the dividend less the advanced corporation tax, as tax cannot be reclaimed by the pension scheme. This cheque should be made payable to the Trustees of the pension scheme, with the Trustee paying it directly into the SASS scheme.
Ongoing valuation of shares
As there is a requirement to value pension scheme assets on an annual basis, the member Trustees will need to arrange for an accountant to produce an independent valuation (at their cost) regarding the value of the share holdings.
Ultimately you would expect the share to be sold at market value, in order to provide retirement or death benefits. However, if the fund has sufficient income in it from other investments, to provide the required benefits, then the shares could be retained in the fund for the next generation.
If the shares are sold to a connected party, then the Trustees must obtain a professional valuation prior to the sale in order to show that the sale price is at market value.
Get the right advice from day one
Get professional advice on the rules of share purchase via your company pension scheme from a qualified and expert financial adviser who knows this area well. The wrong advice, or no advice at all, could leave you with a whopping great tax bill and a badly damaged pension pot.
As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding using your pension to acquire property, or any other financial enquiries you may have.