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Forget Annual Allowance. It's Possible For Your Company To Make A Pension Contribution Of Half A Million Pounds Into Your SSAS!
On the face of it, your company's contribution for you is limited by your annual allowance, currently £40,000 (2017/18).
However, a company can make a much larger contribution.
SSAS is an occupational pension scheme. Within the legislative framework, there's a facility for the company to make indirect contributions.
An indirect contribution is not specifically allocated to a member in the year it’s made. It'll either be allocated to members in future years or it'll used to fund the pension scheme’s administration expenses.
When an indirect contribution is allocated to your personal fund, that's when your annual allowance is applied.
Corporation Tax relief on the indirect contribution is available in the year it’s made. It needs to meet the "wholly and exclusively for the purpose of trade" test.
If the contribution exceeds £500,000 (up to a maximum of £2 million), the relief must be spread over future years.
Indirect contributions can either be paid in cash or in-specie: for example, contributing a commercial property.
The money can be invested in any approved asset class, such as stockmarket assets, commercial property or even be loaned back to the sponsoring employer.
There's no limit to the number of times a company can make indirect contributions. However, the number of current and possible future members will create a natural ceiling.
The age of members must also be taken into account, as it's only possible to distribute funds to members at the annual allowance level, and until the receiving member’s 75th year.
The reasons why this works are as follows:
- The contribution is subject to pension legislation
- You cannot benefit from the funds until they're allocated to you
- The allocation of funds to you is limited by your annual allowance
- The withdrawal of your funds from the pension is covered by drawdown legislation
- It's not possible to distribute the funds back to the sponsoring employer without breaching current pension legislation and incurring substantial tax charges
There are several situations where this might be of value to you:
- If your company is looking to reduce its Corporation Tax liability
- If your company has a surplus of cash and wants to provide for future contributions
- If you want to build your pension fund quickly to purchase commercial property
- If you want to provide contributions for new and future members
- If you're planning your exit strategy and want to provide for future contributions now
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