Investments Options in the UK (EIS/SEIS)

When it comes to planning for retirement, business owners and company directors often seek flexible, tax-efficient options to maximize their savings. A Small Self-Administered Scheme (SSAS) pension is one such vehicle designed for those who want more control over their retirement funds. This blog will break down the basics of how SSAS pensions work and explore the key benefits they offer.

What is an SSAS Pension?

A SSAS is a type of occupational pension scheme typically set up by private limited companies (often family-run businesses). It allows its members significant control over how the pension pot is invested. Unlike a Self-Invested Personal Pension (SIPP), an SSAS is run by the scheme's trustees—often the company's directors—offering greater flexibility and investment options.

How Does an SSAS Work?

Here are the key features of a SSAS pension:

• Membership: An SSAS can have up to 11 members, usually company directors, employees, and sometimes family members. Each member's contributions and investments are tracked individually within the same scheme.
• Trustee Control: The SSAS is administered by trustees, who are often the scheme members themselves. The trustees control how the funds are invested, providing high flexibility and decision-making power.
• Contributions: Contributions can be made by both the employer and individual members. Employers can contribute directly to the SSAS, benefiting from corporation tax relief. Members also get personal tax relief on their contributions, subject to annual limits.
• Investment Flexibility: One of the most attractive features of an SSAS is its wide range of investment opportunities. Trustees can invest in:
  • Commercial property
  • Loans to the sponsoring employer (within limits)
  • Stocks, shares, and bonds
  • Pooled investment funds
  • Other assets like land or private company shares
• Loans to the Business: SSAS pensions allow trustees to lend money to the sponsoring employer (the company that set up the scheme), offering a unique way to use pension funds to support the business. These loans must comply with strict rules set by HMRC, such as being secured against assets and limited to 50% of the SSAS value.

Benefits of an SSAS Pension

• Investment Flexibility: One of the standout features of SSAS pensions is the extensive investment flexibility. Trustees can invest in a wide variety of assets, from traditional stocks and bonds to alternative investments like commercial property. This can open up higher returns and diversification opportunities that aren't always available through standard pension schemes.
• Tax Efficiency: SSAS pensions offer significant tax advantages:
  • Tax Relief on Contributions: Both personal and employer contributions to an SSAS are eligible for tax relief. Employers can reduce their corporation tax liability through pension contributions.
  • Tax-Free Growth: Investments held within an SSAS grow free from capital gains tax and income tax, allowing the pension fund to accumulate more quickly.
  • Tax-Free Lump Sum: Upon retirement, members can usually withdraw up to 25% of their pension pot as a tax-free lump sum.
• Support for the Business: SSAS schemes allow the sponsoring employer to benefit from the pension fund through loans, which can be used for business growth or cash flow needs. Additionally, SSAS members can purchase commercial property using their pension fund and lease it back to the business, creating an additional income stream.
• Increased Control: With an SSAS, trustees have direct control over how the pension assets are invested. This is especially beneficial for experienced investors or business owners who want to align their pensions with their business strategy and risk tolerance.
• Inheritance and Estate Planning: SSAS pensions offer effective estate planning options. Upon a member's death, the remaining pension fund can be passed on to beneficiaries, often outside of the inheritance tax net. This makes SSAS pensions a useful tool for safeguarding wealth for future generations.
• Pooling of Resources: Since an SSAS allows multiple members, usually from the same family or business, to join, it provides an opportunity for pooling pension resources. This collective pot can allow the purchase of larger investments, such as commercial properties, which might be unaffordable with a smaller pension.

Is an SSAS Right for You?

SSAS pensions are particularly well-suited to business owners, company directors, or high-net-worth individuals who want more control and flexibility over their pension investments. However, they are complex to set up and require ongoing management by trustees, meaning that they may need to be the right fit for everyone.

It's important to seek professional advice to determine if an SSAS aligns with your business and retirement goals. For those who value control and flexibility while maximizing tax efficiency, an SSAS can be a powerful tool for growing retirement wealth and supporting the business simultaneously.

Conclusion

A Small Self-Administered Scheme offers a unique combination of investment flexibility, tax advantages, and business support that can significantly enhance a business owner's pension strategy. While it requires careful management and is subject to strict regulations, the potential rewards in terms of both personal wealth and business success can make an SSAS an attractive option for those looking to take charge of their retirement planning.

If you're considering an SSAS, please contact us to ensure it's the right fit for your circumstances and unlock the potential this powerful pension scheme can offer.

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS)

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are government-backed investment schemes in the United Kingdom that are designed to encourage investment in small, high-risk companies. These schemes offer tax relief to investors who invest in eligible companies, making it an attractive option for those looking to invest in start-ups and early-stage businesses.

The Enterprise Investment Scheme (EIS) is aimed at companies that are not listed on a stock exchange and have fewer than 250 employees. Under the EIS, investors can claim income tax relief of up to 30% on investments up to £1 million per tax year. In addition to income tax relief, investors may also be eligible for capital gains tax relief, and losses on EIS investments can be set against other income.

The Seed Enterprise Investment Scheme (SEIS) is a more recent scheme, aimed at even earlier-stage companies. Under SEIS, investors can claim income tax relief of up to 50% on investments up to £100,000 per tax year. As well as income tax relief, SEIS investors can also claim capital gains tax relief, and losses on SEIS investments can be set against other income.

Both EIS and SEIS investments are considered high-risk and they are not covered by the Financial Services Compensation Scheme. It's important to do your due diligence and research the company you are considering investing in, as there is a risk that you may lose all or some of your investment.

In conclusion, The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are government-backed investment schemes in the United Kingdom that are designed to encourage investment in small, high-risk companies by offering tax reliefs to investors. EIS is aimed at companies that are not listed on a stock exchange and have fewer than 250 employees, it offers income tax relief of up to 30% on investments up to £1 million per tax year. SEIS is a more recent scheme, aimed at even earlier-stage companies, it offers income tax relief of up to 50% on investments up to £100,000 per tax year. Both schemes are considered high-risk and it's important to do proper research and due diligence before investing.

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