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Pension Led Funding (PLF): Part four – frequently asked questions (FAQs)

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

So, if you’ve got this far in our series, then very well done! In this, our fourth and final blog on Pension Led Funding, we summarise some of the FAQs

How much do I need to have in my existing pension schemes to be able to take advantage of Pension Led Funding?

You must be able to transfer at least £60k of pension funds to the new SSAS in order to be able to take advantage of the planning.

How long does my Company need to have traded?

It is important to demonstrate that the Company is trading as a going concern and, if security is being taken over the shares of the Company, that a robust valuation can be produced. It may well be that this is easier to demonstrate on a Company which can provide three years accounts – but this is not true in all cases.

We have particular expertise in providing due diligence and valuation in respect of Companies in the growth stage (perhaps 6-24 months trading). This is often a phase where a business needs funding support. Unhelpfully, it is often where a bank’s lack of flexibility will not allow it to entertain providing any funds. In other words, computer says “no”.

Can I use a dormant Company to establish the pension Scheme?

No. We are aware that there are valid technical arguments that a sponsoring employer for a SSAS does not have to be active.

However, as a business, we have taken the view that an Employer needs to be an established trading company.

I am thinking of securing the loan over my Company shares. How do I know how much my Company is worth?

It will be necessary for a Chartered Accountant to undertake a valuation of the Company where the loan is to be secured on its value. This valuation will be used as the basis for any loan.

Where other assets are used, then an appropriate third party valuation will be required. This will apply regardless of whether the asset is, say, a building or intellectual property.

Do I need to use a Financial Adviser?

Yes. We recommend that you should not attempt to implement the planning unless you have a suitability report from an appropriately qualified and regulated individual.

Do I need to be the Administrator?

Not unless it is your life’s dream to be one! There is a third party administration company who fully understands this planning and they are happy to offer their services as part of the package.

Do I need to be a Trustee?

Yes. A SSAS is a pension scheme where all the Members are Trustees. You therefore need to be a Trustee of your own scheme.

What are my roles and responsibilities as a Trustee?

As a Trustee, you are the legal owner of the pension scheme assets. You need to act:

  • in line with the pension scheme trust deed and rules
  • in the best interests of the pension scheme members
  • impartially, prudently, responsibly and honestly

Some of the Trustee’s responsibilities relate to operating the tax rules laid down by HM Revenue & Customs (HMRC).

Other responsibilities flow from non-tax legislation. It is the Pension Schemes Regulator (TPSR) that is responsible for monitoring how trustees follow these rules.

Please ask to see our Technical Guide for further information.

In addition, The Pensions Regulator’s website has more information about these requirements and detailed guidance for pension scheme trustees. We would recommend that you visit the “Trustee Toolkit” pages of their website in particular: https://trusteetoolkit.thepensionsregulator.gov.uk/

Can my spouse be a member of the scheme?

Yes, your spouse may be a member of the scheme.

What is the maximum loan I can make to the sponsoring employer?

The maximum loan is 50% of the net scheme assets immediately before the loan is made.

Can the loan be secured on my personal assets?

The loan may be secured on your personal assets as well as the assets of the business.

Furthermore, we are relatively flexible over the type of asset which may be used. The key is that a robust valuation can be obtained for the asset and there are no existing charges over the asset which would take priority over the Trustee’s charge.

Can I take a personal loan from my SSAS?

No, no and thrice no. This would be subject to significant tax penalties.

If up to 50% of the scheme assets can be advanced to my Company as a loan what happens to the other 50%?

As Trustee, the management of this is down to you. We would recommend that you speak to your financial adviser.

Can I or the Company make further contributions to the SSAS?

Yes you can. For both Employer and Employee contributions, these payments would normally attract tax relief.

How may I take retirement benefits from my SSAS?

Other than in exceptional circumstances, you may only take retirement benefits from age 55 onwards.

Traditionally, it has been possible to take up to, under normal circumstances, a tax-free lump sum of up to 25% of the fund. The balance being used to generate an income in retirement.

However, Budget 2014 announced seismic changes in the manner in which benefits may be taken. The new legislation, in force since April 2015, provide for a greater flexibility as to how one can take benefits at age 55. These include the headline measure of being able to fully decant one’s pension fund (post age 55) in one transaction if desired. The funds being subject to tax at the taxpayer’s marginal rate.

We would always recommend that a client seek proper financial advice before making such decisions.

 

And that is that for our journey through Pension Led Funding. We feel it is an incredibly useful tool for entrepreneurs and SMEs in various stages of growth. As sources of alternative finance expand, one should make sure that you also explore PLF as well.

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