Background
Dale Farmers Ltd is a successful family-run farming business owned by Directors John and Rose Dale. With forecast profits of £300,000, the business continues to perform strongly. John and Rose are planning to retire within the next 5–7 years and intend to bring their three adult sons into the company, who will gradually take over responsibility for running the farm and undertake several new projects to expand the business.
The farmland is currently owned by the company and was valued at £425,000 two years ago. By selling the land to a SSAS at open market value, Dale Farmers Ltd can release capital back into the business, providing the sons with the funds needed to progress their projects while continuing the transition to the next generation.
Solution: Establishing a Small Self-Administered Scheme (SSAS)
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Dale Farmers Ltd establishes a SSAS to receive:
- Transfers of John and Rose's existing pensions – John currently has £180,000 in a personal pension and Rose has £80,000 in an existing personal pension.
- A gross employer contribution of £250,000, split equally between John, Rose and their three sons.
- The SSAS bank account now contains £510,000 in cash.
- The farmland is revalued by a RICS-qualified surveyor at £450,000, and the SSAS purchases the farmland for this amount.
- Dale Farmers Ltd agrees to a lease paying an open-market rent of £50,000 per annum to the SSAS.
Benefits
Benefits for the Business
- The cash is released from the SSAS, providing the sons with the capital required to grow the business.
- Dale Farmers Ltd has saved £50,000 in Corporation Tax (20% of the £250,000 contribution) and will continue to benefit from an additional £10,000 per year in tax relief on the rent.
- The company can continue trading successfully while making significant pension contributions for the directors and reducing its Corporation Tax liability, supporting long-term business stability.
Benefits for the Directors and Family
- The family now has a pension scheme that is fully under their control and can actively support the business.
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With the SSAS under their control, they benefit from:
- greater investment flexibility, as they are also trustees of the scheme;
- greater flexibility over benefit options, including choosing when and how benefits are taken, subject to the applicable pension rules.
Long-Term Financial Planning and Succession Advantages
- Ownership of the farmland is now held by the SSAS for the benefit of its members, helping to support long-term family succession planning.
- The structure supports succession planning by enabling John and Rose to transition responsibilities smoothly to their sons while safeguarding pension assets for the scheme's members.