The Tax Benefits of SSAS Pensions in the UK

December 2, 2024
Published by Anya Augustine

For business owners and property investors in the UK, Small Self-Administered Schemes (SSAS) pensions are very useful. They offer a powerful, tax-efficient vehicle for retirement planning. SSAS pensions are employer-sponsored schemes. They allow business owners to gain control over their retirement funds and invest in a wide range of assets, including commercial property. With recent updates in the Autumn 2024 Budget, it’s essential to understand the unique tax benefits of SSAS pensions and how they can support your financial goals.

At GoldHouse Accounting, we help business owners and investors navigate the complexities of SSAS pensions to maximise tax efficiency. Here’s a look at the key tax advantages of SSAS pensions and how the latest budget changes may affect your retirement planning.

1. Corporation Tax Relief on Pension Contributions

One of the most attractive features of SSAS pensions is the ability for companies to make contributions directly to the scheme and receive corporation tax relief. When a company makes a contribution to a SSAS on behalf of an employee or director, it can be treated as a business expense, reducing the company’s taxable profits.

In the Autumn 2024 Budget, the effective corporation tax rate remains at 26.5% for businesses with profits over £50,000 to £250,000. So, this tax relief on SSAS contributions can lead to substantial savings. By reducing taxable profits, companies can improve their cash flow while also investing in the directors’ future retirement income.

Key Benefits:

Corporation tax relief on contributions reduces the company’s tax bill.
Improves business cash flow while funding retirement.

2. Tax-Free Growth on Investments Within the SSAS

Like other types of UK pension schemes, the investments within a SSAS pension grow tax-free. This means that income from rental properties, dividends, and any gains from the sale of assets are not subject to Capital Gains Tax (CGT) or Income Tax within the SSAS pension wrapper. For property investors, this is a significant advantage, as commercial property investments within a SSAS can grow tax-free over time.

With the Autumn 2024 Budget confirming the CGT allowance for individuals is now at £3,000 (down from £6,000), tax-free growth within a SSAS is even more beneficial for those who would otherwise face substantial CGT on their property investments outside a pension scheme.

Key Benefits:

Tax-free growth on income and gains within the SSAS.
No CGT on commercial property sales within the scheme.
Efficient for property investors looking to grow CGT free.

3. Personal Tax Relief on Individual Contributions

Individuals who contribute to a SSAS can benefit from Income Tax relief on their personal contributions. For contributions up to 100% of an individual’s earnings (up to an annual allowance of £60,000 for the 2024/25 tax year), tax relief is available at the individual’s marginal tax rate.

The Autumn 2024 Budget retained the annual allowance at £60,000, offering substantial scope for tax-efficient retirement saving. Higher earners can save significant amounts on their tax bill by contributing to a SSAS, especially those in the 40% or 45% tax brackets. This tax relief provides a valuable incentive for high-income individuals to save for retirement in a tax-advantaged way.

Key Benefits:

Income Tax relief up to 100% of earnings (subject to the annual allowance).
Effective tax savings, especially for high earners.
Encourages long-term retirement savings in a tax-efficient manner.

4. Inheritance Tax (IHT) Benefits

SSAS pensions also offer significant advantages for inheritance tax (IHT) planning. Unlike many other assets, the funds in a SSAS pension do not typically form part of the individual’s estate, meaning they are not subject to IHT upon the pension holder’s death. This is particularly valuable for those looking to pass on wealth to future generations in a tax-efficient way.

After the Autumn 2024 Budget, the IHT nil-rate band remains frozen at £325,000, which makes the inheritance tax benefits of SSAS pensions even more valuable. By keeping pension assets outside the taxable estate, business owners and investors can preserve more wealth for their beneficiaries. It is proposed that starting from April 2027, pensions will be included in your estate, which is likely to require additional tax planning moving forward.

Key Benefits:

SSAS funds are typically outside the estate for IHT purposes at least until April 2027.
Allows tax-efficient legacy planning.
Protects family wealth for future generations.

5. Flexible Investment Options for Business and Property

A SSAS pension offers more investment flexibility than traditional pensions. SSAS funds can be invested in a range of assets. This list includes commercial property, shares, loans to the sponsoring employer, and more. Business owners often use SSAS pensions to purchase commercial property that their business can then rent, providing both a retirement asset and a business premises.

Loans to the sponsoring employer must comply with strict HMRC rules, but they can provide a useful source of financing for the business while also contributing to the pension fund’s growth. This flexibility, coupled with tax advantages, makes SSAS a versatile tool for those wanting to combine retirement planning with business growth.

Key Benefits:

Invest in commercial property and lease it back to the business.
Loan options to support business growth.
Broad investment flexibility tailored to business needs.

6. Access to Tax-Free Lump Sum Upon Retirement

Upon reaching the minimum retirement age (currently 55, rising to 57 in 2028), SSAS pension holders can take up to 25% of their pension pot as a tax-free lump sum. This is a valuable feature for individuals seeking a flexible retirement income. The remainder of the pension fund can be drawn as income, subject to Income Tax, or left invested for continued tax-free growth.

The ability to take a tax-free lump sum allows SSAS members to enjoy greater control over their retirement finances, with tax-efficient options for drawing down the funds as needed.

Key Benefits:

Take up to 25% as a tax-free lump sum.
Provides flexibility in retirement planning.
Continued tax-free growth on the remaining funds.

Conclusion

SSAS pensions offer a unique blend of tax benefits, investment flexibility, and opportunities for business growth, making them particularly appealing for business owners and property investors. From corporation tax relief on contributions to tax-free growth within the scheme and inheritance tax advantages, SSAS pensions are a versatile and tax-efficient way to build and preserve wealth.

With the recent updates in the Autumn 2024 Budget, the benefits of SSAS pensions are more valuable than ever, especially given the reduction in CGT allowances and continued freezes on IHT thresholds. At GoldHouse Accounting, we specialise in advising clients on tax-efficient retirement planning. Contact us today to learn how a SSAS pension could benefit your business and support your financial goals.

Get in Touch for SSAS Pension Advice

If you’re interested in learning more about SSAS pensions and how they could work for you, you can download our free SSAS Pension Guide. If you are after tailored advice, you can contact GoldHouse Accounting. Our team will guide you through the intricacies of SSAS pensions, ensuring you make the most of this powerful investment tool. In the meantime, check our our free resources including our other guides and other blog posts. For more from us, visit our social media channels.

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