Using a SSAS to buy your business premises

If your company rents the unit it trades from, that rent leaves the business every month and never comes back. A SSAS can put the pension on the other side of that transaction, so the rent goes into your own retirement pot instead of a landlord’s.

It is one of the more powerful things available to a business owner, and one of the easier ones to get wrong. This is what it involves.

What a SSAS is

A small self-administered scheme is an occupational pension set up by a limited company, usually for its directors and sometimes key employees. Members are normally trustees too, which is the part that matters: the people in the scheme make the investment decisions.

That control is what lets a SSAS do things a personal pension cannot — including buying commercial property and lending money back to the sponsoring company.

How buying the premises works

In outline:

• The directors’ existing pensions are transferred into the SSAS, which may mean consolidating several old pots
• The SSAS buys the commercial property, at market value, from a third party or from the company itself
• The company then rents the property from the SSAS on a commercial lease at a market rent
• That rent is paid into the pension

The effect is that a cost the business was paying anyway becomes a contribution to the owners’ retirement, and the business gets security of tenure over premises it no longer has to negotiate for.

The tax treatment

• Rent received by the SSAS is not taxed. It goes into the pension gross.
• Rent paid by the company is normally an allowable business expense, so it reduces the corporation tax bill in the usual way.
• No capital gains tax on any growth in the property’s value inside the scheme.
• Contributions into the SSAS attract the usual pension tax relief, subject to the annual allowance.

There are two further points people miss. A SSAS can borrow to help fund a purchase, up to 50% of its net asset value — so a scheme holding £200,000 could borrow up to a further £100,000. And a SSAS can make a loan back to the sponsoring employer, within strict conditions, which is a source of business funding most owners do not know they have.

Where it goes wrong

This is the section worth reading twice.

• Commercial property only. Residential property is taxable property for pension purposes and buying it inside a scheme triggers heavy tax charges. A flat above the shop can make an otherwise straightforward purchase difficult, and needs specific advice.
• Everything must be at arm’s length. Market value on the purchase, market rent on the lease, a proper independent valuation, a real lease document. A favourable rent to help the company’s cash flow is exactly what creates a problem.
• The rent has to actually be paid. If the business hits a difficult year, the trustees still have to pursue the arrears as any landlord would. Being on both sides of the lease does not remove that duty.
• Property is illiquid. Once a large part of the pension is a building, it is not easily converted into an income at retirement. That has to be planned for rather than discovered.
• Concentration risk. If the business fails, it can fail at the same time as the tenant of your pension’s main asset. Your income, your retirement and your property are all exposed to the same thing.
• Transferring old pensions in may cost you something. Some older schemes carry guaranteed annuity rates or other safeguarded benefits that are worth more than they look. Those have to be checked before anything moves.

An illustration

Two directors of a consultancy have £180,000 between them across several old pensions. They pay £18,000 a year in rent on the unit they work from, which is on the market at £250,000.

They transfer their pensions into a SSAS, which borrows a further £90,000 to complete the purchase. The company continues to pay £18,000 a year in rent — the same cost as before — but it now goes into their pension rather than to a landlord, and it is still an allowable expense for the company.

This is an illustration of the mechanics. It is not a client, not a recommendation, and it ignores the purchase costs, the borrowing costs and the ongoing scheme fees, all of which are real and all of which have to be worked through properly.

Is it worth it?

A SSAS costs more to run than a personal pension and involves genuine trustee responsibilities. It earns that where there is a specific job to do — buying the premises, lending to the business, or pooling several directors’ pensions to reach a purchase price none of them could manage alone.

If none of those apply, a SIPP will usually do the same job with less administration.

Common questions about SSAS and property

Can a SSAS buy commercial property?

Yes. A SSAS can buy commercial property such as offices, shops and industrial units, including the premises your own company trades from. It has to be bought at market value and let to the company at a market rent.

Can a SSAS invest in residential property?

Not without heavy tax charges. Residential property is taxable property for pension purposes. Mixed-use buildings, such as a shop with a flat above it, need specific advice before anything is agreed.

Can a SSAS buy property from my company?

Yes, as long as it is bought at market value backed by a proper independent valuation. The same arm’s-length rules apply to the lease afterwards.

Can a SSAS borrow to buy property?

Yes, up to 50% of the scheme’s net asset value. A scheme holding £200,000 could borrow up to a further £100,000.

Can a SSAS lend money to my business?

Yes, within strict conditions. A loan back to the sponsoring company is one of the things that sets a SSAS apart from a personal pension.

What are the disadvantages of a SSAS?

It costs more to run than a personal pension, and the members take on real trustee duties. Property is hard to turn into a retirement income, and if the pension owns the building your business trades from, your income, your retirement and the property all depend on the same business.

What to do next

The first question is not whether a SSAS is a good idea in general. It is whether the pensions you already hold, the property you have in mind and what the business can support actually fit together. That is a short conversation with a clear answer.

We are an independent, whole-of-market firm based at Glasgow Harbour, working with business owners across Glasgow and the west of Scotland.