The Small Self Administered Scheme (SSAS) market looks set for a resurgence, with two major benefits.
The removal of Protected Rights benefits from this tax year will level the playing field for SSASs with the more popular Self Invested Personal Pension (SIPP). Up until recently, the inability to hold Protected Rights has proved a stumbling block as any benefits have needed to be held separately, outside of the SSAS. This was not the case for the more flexible SIPP. The recent change has removed a previous barrier to some clients’ ability to benefit from the advantages of SSASs and creates new opportunities for them.
Where SSAS clients have already taken advantage of the opportunity to borrow against property assets, the new funds can be used to repay or reduce the existing borrowing. The SSAS can then pay less interest to a bank and more rental income would start to accrue to the SSAS, again creating the opportunity for further investment and advice.
The major benefit of SSASs is the connected party loan-back option. Although the controlling legislation for SSASs and SIPPs is similar, the investment capabilities are not the same. Only SSASs can make connected party loans and this is their unique selling point.
In last year’s autumn statement the chancellor announced his intention to expand credit lending facilities for small businesses and this was confirmed with the launch of the £20 billion National Loan Guarantee Scheme, aimed at small-to-medium-sized businesses with a turnover of less than £50 million. However this is unlikely to match a loan from a SSAS, which can currently offer interest rates of 1.5% for a term of up to five years (there must be a minimum rate of base rate plus 1%). There are a few conditions which need to be met, such as the first charge over an asset must be at least equal in value to the loan plus interest at the time of advancement, the term of the loan must be a maximum term of five years with capital and interest payments in equal monthly instalments throughout, and finally, as with a SIPP, the SSAS can lend a maximum of 50% of its net assets.
The end of Protected Rights creates an opportunity for clients to consolidate pensions and for those who did not have a fund large enough to make a SSAS worthwhile to reconsider their position, especially if their business needs capital by way of a loan back. This facility provides a very attractive alternative to normal business borrowing routes.