SSAS for Tax Efficiency: Holding Commercial Property in a Pension
If you own or plan to buy trading premises or other commercial property, you may want to think about a Small Self-Administered Scheme (SSAS) for Tax Efficiency. Many business owners keep commercial property in their company or in their personal name. Both approaches can cause unwanted costs and risks. Holding property in a trading company links it to corporate liabilities and often triggers multiple taxes on sale or profit extraction. Holding property personally may avoid those specific risks, but it can lead to higher income tax on rent.
Below, you’ll learn why holding property in a trading company can be less favorable, why a SSAS can help you, and how real examples prove the tax benefits. You’ll also find a final FAQ at the end. Use this information to shape your own decision and explore professional advice when needed.
Downsides of Holding Property in a Trading Company
Tax Issues
• When the company sells the property, it faces corporation tax on any capital gain.
• If dividends are paid out of the profit, you as a shareholder may owe income tax again.
• This “double taxation” cuts into the overall benefit of holding property in the business.
Risks to the Asset
• The property is tied to the company’s liabilities.
• If the company faces financial trouble, creditors may target the property to recover debts.
The SSAS Option
A SSAS (Small Self-Administered Scheme) can be an efficient way to hold trading premises. It is often used by private company owners. It’s different from a Self-Invested Personal Pension (SIPP), which needs an external trustee. A SSAS is usually controlled by the company’s directors. They decide how and where to invest the scheme’s assets.
Here are some key features:
• Direct Control: Directors act as trustees.
• Flexibility: You can transfer funds or property into the scheme.
• Tax Advantages: Contributions, rent, and gains can benefit from special pension rules.
Key SSAS Benefits
1. Tax-Free Contributions
o Your company can pay cash or transfer property in specie (direct transfer of assets).
o Contributions can offset corporation tax.
o The annual pension allowance is £60,000 per working director for the 2024/2025 tax year.
o Unused allowances from the previous three years can roll forward. This can allow up to £180,000 of contributions per director.
2. Tax-Free Rental Income
o If the property is rented back to your own company, the rent goes into the SSAS without income tax.
o That rental income can be reinvested in other pension assets.
3. Tax-Free Lump Sum and Flexible Drawdown
o You can withdraw up to 25% of your total pension fund tax-free when you retire.
o The rest of the fund can be drawn down as taxable income, but modern pension rules offer flexibility in how much you take.
4. Capital Gains Relief
o Any profit from selling the property inside the SSAS is free of capital gains tax.
5. Risk Control
o Property inside the SSAS is not exposed to business creditors if the trading company has financial problems.
o This can add a layer of protection for your property.
Examples and Potential Savings
1. Property Valued at £300,000
o You transfer the property from the company to the SSAS.
o The company might claim tax relief on that £300,000 contribution. At a 19% corporation tax rate, that could mean a saving of £57,000.
o Future rent paid to the SSAS is tax-free, and any rise in property value is not subject to capital gains tax.
2. Manufacturing Business with £400,000 Premises
o If the property is held in the company and sold later, it faces corporation tax on the gain, then you owe income tax on dividends.
o Moving it into a SSAS can cut out those taxes, plus the rent stream is not taxed, and the SSAS retains the long-term gains.
These examples show how a SSAS can simplify your tax position and give your property a degree of protection.
Using a Small Self-Administered Scheme (SSAS) for commercial property may offer tax savings for a range of businesses. You could claim relief on contributions, receive tax-free rent, and enjoy capital gains relief. The asset also sits outside your company’s trading risks. Over the long term, this can grow your retirement fund and help preserve value for you and your family. Still, always confirm the steps with a qualified professional if you have specific property or pension questions.
Frequently Asked Questions
1. What is a SSAS?
A SSAS is a pension scheme often set up by directors of private companies. They manage it themselves, which provides more investment control than some other pensions.
2. Who can be a SSAS trustee?
In most cases, directors of the business act as trustees. You can also involve other trustees if needed.
3. Are there limits on contributions?
Yes. The annual allowance is £60,000 per working director for the 2024/2025 tax year, with unused allowances from up to three previous years available.
4. Does a SSAS invest in residential property?
Typically no. SSAS rules mostly allow commercial property, stocks, funds, and certain other assets. Residential property is generally not permitted.
5. How long does it take to set up a SSAS?
It can take a few weeks. You’ll need a trust deed, scheme rules, and formal registration with HMRC.
6. Do I need a professional valuation when transferring property?
Yes. HMRC often requires an independent valuation to confirm the property’s market value.
7. What if the property is mortgaged?
The SSAS can sometimes take over or refinance the loan, but you must follow HMRC guidelines and possibly adjust the loan structure.
8. Can I lose tax benefits if the rent is below market value?
Rent should reflect an arm’s-length transaction. Below-market arrangements may lead to tax complications with HMRC
9. Is there a penalty for exceeding the annual pension allowance?
Yes. Any contributions above the allowance can trigger an annual allowance tax charge.
10. Can SSAS rules change over time?
They can. Pension regulations do shift. It’s wise to stay informed about any updates from HMRC or the government.
click here for more