Pensions for Business Owners

2. How to Fund Your Retirement

Since the advent of a simplified tax regime, business owners can make much more of their pension arrangements.

2.1 By setting up a Small Self-administered Scheme (SSAS) company owners can use the pension fund to lend money or to invest in the business.

• SSASs fall under the same tax regime as other registered schemes and offer the same advantageous tax breaks.
• Employer contributions are unlimited and deductible against corporation tax.
• SSASs can hold up to five per cent of the sponsoring employer's shares.
• A SSAS can lend money to the employer provided the loan does not exceed 50 per cent of the net value of the scheme's assets.
• SSASs can borrow to invest or to pay a member's benefits. But borrowings must not exceed 50 per cent of the scheme's assets.

2.2 Pension funds can now form part of an exit strategy for business owners.

• In the final year of work before retirement there are no limits on the amount you can pay into a pension.
• If you plan to sell your business to fund your retirement, paying a large contribution into your scheme will both provide a pension in its own right and reduce the capital gains tax on sale of the company.
• However, you cannot exceed the lifetime allowance without incurring a tax penalty.

2.3 A pension mortgage is a tax-efficient way of repaying a loan on a property.

• You make interest-only payments on the mortgage while at the same time paying into a pension. At the end of the mortgage term, you use the tax-free lump sum from the pension to pay off the mortgage.