Sarah is the sole shareholder and director in the wildlife television production company Big Cat Productions Ltd. Big Cat has made profits of £150,000 per year for the last 5 years, although Sarah had only taken a salary of £100,000 p.a.. The balance was retained in the business but not used for its working capital.
Her accountant advised that excess cash held in the business may not benefit from the small companies’ exemption for Inheritance Tax purposes or from Entrepreneur’s relief on capital gains tax if Big Cat is sold or wound up in the future.
The accountant suggested the company make a pension contribution for Sarah
to reduce the cash held on the balance sheet. Sarah has a small pension scheme and at first rejected the idea because she didn’t want to be tied to an investment product. The accountant then suggested she consider a SSAS so she could control the scheme’s investments directly, select an investment manager or even retain the funds in cash.
Big Cat paid £160,000 to the SSAS, resulting in a loss that company year compared
with the expected profit of £150,000. This allowed the accountant to recover some of the corporation tax paid in the previous company year.
The monies now held in the pension scheme can be paid out without any form of taxation in the event of Sarah’s death before she draws pension benefits. Sarah can also use future profits to add to her SSAS and increase her benefits.
Following the establishment of the scheme, Sarah interviewed independent investment managers to oversee part of the fund on her behalf. Sarah was pleased to obtain the benefit of tax relief without rushing in to investment decisions.
Sarah explained what she had done to her husband, a solicitor, and he is now considering joining the scheme and paying contributions himself.