Harry and Ivan are directors and equal shareholders in Unchained Gold Ltd, a jewellery business they have owned and managed for 25 years. During this period they acquired a number of retail units and workshops. A large number of these are now let to third-party tenants with a value of £1 million and a rental income of £95,000 p.a..
The company profits, whilst still healthy, have dropped in recent years to £250,000. Harry and Ivan’s accountant, James, expressed concern that the company’s investment income from rents represented an increasing share of profit and the trading status of the business could be questioned.
James suggested they establish a SSAS and transfer part of each of the investment properties to the pension fund. The directors could transfer a value of £200,000 initially and assess any future transfers based on the profits made each year. The company would receive corporation tax relief on the value of the property transferred to the pension scheme and over time the full value of the properties could be transferred to the SSAS.
Whilst the properties are being transferred, the rental income will be split between the SSAS and the company in proportion to their ownership of the properties. The rental income received by the SSAS would be received tax-free. Over time, the transfers will reduce the investment income of the company and the profits will simply be trading profits.
The directors were excited by reducing the taxable profits of the company, tidying up the investments held by the company and the prospect of receiving 25% of the value of the SSAS tax-free when they reached age 55 – including 25% of the accumulated rental income!