Background
Spotlight Events Ltd is a highly profitable event-management company owned by Directors James Cook and Neil Stevenson. As part of their growth strategy, they have the opportunity to acquire a complementary business for £240,000, but face a challenge: while the company is asset rich, it is currently cash poor, leaving them concerned they may miss out on the acquisition due to limited liquidity.
At the same time, Spotlight Events Ltd has been contributing to the Personal Pension Schemes of its team, including James’s son and Neil’s daughter. Both Directors also hold personal pension plans worth £200,000 each, and their children have pension savings of £40,000 each. With the acquisition deadline approaching, James and Neil need a way to unlock funding without straining the company’s cash flow or delaying their expansion plans.
Solution: establishing a Small Self‑Administered Scheme (SSAS)
Spotlight Events Ltd establish a SSAS pension scheme, enabling the Directors to consolidate pension funds from themselves and family members and use the scheme strategically to unlock funding for their planned business acquisition.
- Following discussions with their long-standing Financial Adviser, James and Neil, as Directors of Spotlight Events Ltd, establish a SSAS and transfer in old Personal Pension Plans they each have (which happen to be £200,000 each).
- James and Neil invite their respective Son and Daughter to join. They accept, transferring their own pension arrangements (£40,000 each) into the new SSAS.
- Spotlight Events Ltd makes a contribution of £10,000, split equally between all members.
- The SSAS now contains £490,000 and it can lend up to 50% of its Net Asset Value back to Spotlight Events Ltd as a Sponsoring Employer to the scheme.
- Spotlight Events Ltd applies to the SSAS for an Authorised Employer Loan of £240,000 to finance the business expansion.
- The SSAS trustees agree and terms are as per HMRC requirements (maximum five year term, regular capital and interest payments, a commercial rate of interest is agreed and the loan must be secured).
- The security must be in the form of a first ranking legal charge at the outset, and James and Neil offer a small business centre (5 industrial units recently valued at £310,000) which they own personally.
- If Spotlight Events Ltd defaults on the loan, the SSAS can then take ownership of the above security to recover its money.
Benefits
- Of the remaining balance of £250,000 held in the SSAS, £200,000 is then invested with a registered stockbroker James has used for his personal investments on a discretionary managed basis. The stockbroker establishes an account in the name of the SSAS and invests the money in a manner appropriate to the attitude to risk of all 4 members.
- £50,000 is held in cash deposits (diversification of assets, liquidity)
- Spotlight Events Ltd has reduced its corporation tax bill by £2,000 (as a 20% corporation tax payer (20% of the £10,000 contribution)) but has protected its cash flow position by taking the loan from the SSAS.
- The SSAS receives its capital back over the next five years and receives interest as an investment return.