There are many differences between what a Small Self Administered Scheme (SSAS) and a SIPP are allowed to do. This case study shows how armed with that knowledge we were able to recommend a SSAS as the right and most effective solution to the needs of two of our existing clients, replacing their existing SIPP in the process.
Mr and Mrs R. wanted some pension planning advice
Mr and Mrs R came to us for some specific pension planning advice when Mrs R turned 60. Both already had some pension provision: Mrs R had two pension funds, both of which were insured, whilst Mr R had a SIPP and an insured pension fund (but no small self administered scheme), and they wanted our advice on how best to move things forward.
Their first move was quite straightforward. They had an immediate need for a cash sum, so Mrs R bought an annuity with the smaller of her two pension funds, which delivered the cash they required through the Pension Commencement Lump Sum. Their second decision, concerning Mr R’s SIPP, wasn’t quite so straightforward, and we were able to guide them through the options available, ensuring they made the right choice for them and their circumstances.
The Choice was between a SSAS and a SIPP
Mr R’s SIPP had about £100,000 in a current account, together with a portfolio of shares. Keen to make sure his SIPP was working as hard as possible for him, he asked us whether it could purchase and install solar panels for the office roof of the construction company he is a director of. We pointed out that direct investment in solar panels would, in HMRC’s eyes, be an investment in a movable and tangible object, leading to unwanted tax issues.
He then asked us whether the SIPP could, instead, lend money to the Principal Employer (the company Mr R is a director of) so that it could purchase and install the solar panels instead. This type of loan facility is not available under a SIPP, but it is under a Small Self Administered Scheme (SSAS), and we advised Mr R as such.
The Solution – set up a new SSAS
It was agreed that a new Small Self Administered Scheme would be set up, which would include both Mr and Mrs R, with Mrs R transferring her larger insured pension plan into the SSAS. The cash from Mr R’s SIPP was transferred into a new bank account, whilst the share portfolio was re-registered in the names of the Trustees of the SSAS. Mr and Mrs R could provide security for the proposed loan using a mortgage-free residential property, because any loans of this nature must be secured on a first charge basis.
The Outcome – one active pension fund
We did all the necessary planning, setting-up and compliance work, which resulted in the loan being granted from the new Small Self Administered Scheme to the Principal Employer at an agreed interest rate and repayment term over 5 years.
Continuing to work closely with Mr and Mrs R, we arranged at a later date for Mr R’s insured pension fund to be transferred into the SSAS and invested in a Fixed Term Deposit Account for 12 months. This completed their move from 4 pension funds when we started to just 1 active (and flexible) pension fund for both husband and wife, in the form of a SSAS, part of which is invested in Mr R’s business. A perfect example of where a Small Self Administered Scheme and not a SIPP was the right solution.
At PML we aim to deliver excellence in Small Self Administered Schemes. If you would like to see if we can do for you what we did for Mr and Mrs R, please contact us for an initial, no commitment, chat.