ABC Ltd

How ABC Ltd used a SSAS to purchase commercial property and strengthen directors’ pensions

Background

ABC Ltd, a successful fine‑wine importer and distributor, is owned by Directors John Smith and Simon Jones. With forecast profits of £150,000, the business is growing but is constrained by limited warehouse space. Their landlord offers the neighbouring vacant property for £600,000, requiring a fast sale.

Both Directors also have modest pension values - £185,000 (John) and £165,000 (Simon) - and want to improve their long‑term retirement planning.

Solution: Establishing a Small Self-Administered Scheme (SSAS)

ABC Ltd establishes a SSAS, allowing the Directors to pool their pension funds and use them strategically to support the business.

  • ABC Ltd establishes a SSAS to receive:
    • Transfers from both John and Simon of their existing pensions, with a combined value of £350,000.
    • A gross employer contribution of £100,000, split equally between John and Simon.
  • The SSAS bank account now contains £450,000 in cash, which can be put towards the purchase. This leaves a further £150,000 to be raised to buy the premises.
  • The SSAS is permitted to borrow a maximum of 50% of the net fund value, being £225,000. However, only £150,000 is required, and the Directors speak to their bank manager, who agrees to advance a loan to assist with the purchase.
  • The loan will be over ten years on a capital-and-interest repayment basis and will be secured on the property with a first legal charge.
  • ABC Ltd agrees to pay rent to the SSAS at an open-market rent of £40,000 per annum. The trustees use this rental income to service the loan.

Benefits

Benefits for the Directors

  • Both Directors now have a pension scheme that is under their control and is actively helping their business.
  • As Directors, they like to be in control of their affairs and their company’s affairs.
  • As trustees of the SSAS, they have:
    • greater investment flexibility;
    • more benefit options, allowing them to choose when and how benefits are taken.

Tax Savings and Business Advantages

  • ABC Ltd has reduced its corporation tax bill by £20,000, based on a 20% corporation tax rate and the £100,000 employer contribution. The company will also continue to benefit from £8,000 per year in tax relief on the rent.
  • The company continues to trade successfully and can make significant contributions for the Directors, reduce its corporation tax liability and enhance the Directors’ retirement plans.

Long-Term Retirement Flexibility

  • In the future, Simon Jones elects to reduce his working hours. Accordingly, he reduces his salary and compensates for this by drawing regular Pension Commencement Lump Sums (PCLS) via the SSAS.
  • He also elects to draw a small portion of his pension entitlement.
  • He continues working for the business as a Director and retains his shares.
  • In successful years, large future dividends mean Simon can cease taking PCLS withdrawals and drawdown payments, restarting them when he requires additional funds.