Unlocking the Power of SSAS Pension for Property Investors: Part 2

In my previous article, I explored the transformative potential of SSAS pensions for property investors and developers. As a quick recap, a SSAS (Small Self-Administered Scheme) is a type of company pension designed for small to medium-sized businesses, offering unparalleled flexibility and control over your pension funds. This allows you to leverage your funds towards property investments and other ventures, maximising returns while minimising costs and taxes.

Today, we’ll delve deeper into the first of the seven key benefits of a SSAS pension, as highlighted in my first article: providing the cheapest property finance bar none via SSAS Loanback.

The Cheapest Property Finance: SSAS Loanback

One of the standout features of a SSAS is its ability to act as a low-cost source of finance for your property business. This is primarily achieved through what is known as a ‘SSAS Loanback.’ This mechanism allows the SSAS to lend money back to the sponsoring employer (your property business) at a remarkably low interest rate. It’s by far the most influential tool a SSAS can use to help you get more property income or capital from development or flipping.

How SSAS Loanback Works

Here’s how it works:

1. Borrow Up to 50%: You can borrow up to 50% of the net asset value of the SSAS. This means if your SSAS has £400,000 in assets and cash, you could potentially borrow £200,000.
2. Low Interest Rates: The loan is available at an interest rate of just 1% plus the average base rate, which is significantly lower than commercial loans or bridging finance.
3. Quick Access to Funds: Unlike traditional loans, which require lengthy negotiations and approval processes, accessing funds through a SSAS is straightforward and quick. This can be a lifesaver when you need to act fast on a property opportunity.

Why is This a Game-Changer?

For property investors, the SSAS Loanback facility offers several distinct advantages:

– Cost-Effective: The low-interest rate means significant savings compared to conventional financing options. These savings can be reinvested into your business, boosting overall profitability.

– Balance: Furthermore, with a SSAS Loanback, you can dictate where you’d like your wealth to grow; in the SSAS by charging a higher rate of interest than the requirement minimum (think like a bridging loan) and also by making tax-deductible pension contributions to reduce your liability further, or in the business by keeping the interest to the minimum.

– Growth: You’re paying interest to your own pension, not another person or organisation, meaning these savings are directly growing your wealth, and can be deployed in any way you wish.

– Control: With a SSAS, you’re in the driver’s seat. There’s no need to deal with banks or external lenders. You control the key terms and can tailor the loan to suit your business needs. A Loanback does have 5 key tests it must meet to be compliant, including length of term ( 5 years maximum), repayment terms (capital and repayment), payment frequency (at least annually in arrears) and security – more on this to come.

– Speed: Property deals often require swift action. The ability to quickly access funds through a SSAS can mean the difference between securing a lucrative deal and missing out.

Real-World Application

Consider a scenario where you’ve identified a prime commercial property ripe for development. Traditional financing options are either too slow or too costly. By leveraging your SSAS, you can quickly secure the necessary funds at a low cost, enabling you to move forward with the purchase and development and so reducing the financial strain of high-interest loans.

Unlocking Forgotten Wealth

Another powerful aspect of the SSAS is its ability to revitalise old, forgotten pensions. Many property professionals have dormant pensions from previous employments, which they rarely think about. Transferring these into a SSAS not only consolidates your pension wealth but also brings it into your active financial strategy. This means these funds, which might have been languishing with mediocre returns, can now be deployed into your property ventures and result in increased revenue, capital sums or both over many decades.

Securing Your Investment

One concern with borrowing is always the security of the loan. SSAS Loanbacks are required to be secured with a first charge on an asset or a business. This security aspect adds a layer of protection for both the SSAS and your business, ensuring that the loan is backed by tangible value. Moreover, if your property project doesn’t go as planned, you’re not burdened with unsustainable interest rates, offering a financial safety net.

Tax Efficiency

The tax efficiency of SSAS pensions is another notable benefit. Contributions to a SSAS are made from your company’s pre-tax profits, reducing your corporation tax liability. Additionally, the growth within the SSAS is tax-free. This combination of tax relief and low-cost borrowing can significantly enhance the financial health of your property business.

Case Study: Success in Action

To illustrate the real-world impact, let’s look at a case study from one of my clients, Andy, a corporate professional turned property investor, leveraged his SSAS to purchase a commercial property. The SSAS funding enabled him to act quickly and secure a property that he otherwise couldn’t have afforded. Shortly after the purchase, a developer offered to buy the building for a substantial profit. This transaction not only provided a significant return within the business and his SSAS but also freed up capital for further investment opportunities.

Getting Started with a SSAS

Setting up a SSAS requires careful planning and consideration. Here are the steps to get started:

1. Consult with Experts: Engage with financial advisors who specialise in SSAS to ensure it’s the right fit for your business.
2. Set Up the SSAS: This involves creating the trust deed and rules, appointing trustees, and registering the scheme with HMRC. This is typically done with a professional trustee administrator.
3. Transfer Existing Pensions: Consolidate your existing pensions into the SSAS to maximise available funds.
4. Plan Your Investments: Work with knowledgeable advisors to develop a strategy for how the SSAS funds will be invested, focusing on your property goals.

Conclusion

The SSAS pension offers an unparalleled opportunity for property investors to access low-cost finance, control their pension funds, and significantly enhance their wealth-building strategies. The ability to borrow at low interest rates, revitalise dormant pensions, and enjoy tax efficiencies makes SSAS an indispensable tool in a property professional’s arsenal.

By taking control of your pension through a SSAS, you can transform it from a passive, often overlooked asset into a dynamic engine driving your property business forward. The cheapest property finance bar none, the SSAS Loanback, stands as a testament to the power and flexibility of SSAS pensions, making them an essential consideration for every property investor and developer.

If you’re ready to unlock the full potential of your pension and turbo-charge your property business, a SSAS could be the key. Get in touch with experts at WealthBuildewho can guide you through the process and help you make the most of this powerful financial tool.

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