Once in the scheme, the case may be used to make certain investments by the trustees (such as shares, bonds and funds) and there is an opportunity to invest in other assets, such as commercial property. Once the taxpayer meets the requirements to draw down on their pension, they are entitled to receive up to 25% of their pension pot tax free with the remaining 75% drawn as an annuity.
The annual allowance is the maximum amount of pension savings made by or in respect of an individual in a tax year. This limit is £40,000. The limit is tapered for those higher earners with adjusted income over £240,000, to a minimum allowance of £4,000. If contributions exceed the allowance, a tax charge may apply.
In addition to the annual allowance, pension tax relief on an individual’s pension savings is restricted by a lifetime allowance and the standard allowance is currently £1,073,000. If benefits are drawn in excess of this amount then tax will be charged on the excess. Tax protections can apply to those who built up pension savings on the expectation that the higher levels previously applied.
What are UK SIPPs and SASSs?
A Self Invested Personal Pensions (SIPP) is a type of personal pension for one or several members. A SIPP allows the member(s) to control their investment by buying assets such as stocks and shares. Contributions to a SIPP will – up to certain limits – receive pension tax relief.
A Small Self-Administered Scheme (SASS) is designed for the directors of a business and are generally not available to other employees and membership is limited. A SASS can result in serious tax liabilities if not properly administered.
Pension led funding
Pension led funding uses the business owner’s accrued pension funds to invest in their own companies. It provides funding without having to give a personal guarantee to the lender and can provide protection for business assets held within the pension scheme.
Pension led funding can utilise IP (if available) as a new asset to secure the funds. Once the IP value has been established, the pension’s trustees agree to buy some, or all, of the IP assets from the business or loan money to the business secured against the IP.
Once the business receives a cash sum, it begins to make lease payments back to the pension scheme. We have substantial experience of using pension schemes to fund existing businesses and investment businesses and can help you lead the way with pension led funding.
Non-UK pension schemes
QROPS and QNUPS are non-UK pension schemes but both benefit from varying degrees of recognition from HMRC.
A QROPS is a Qualifying Overseas Pension Scheme, a recognised overseas pension scheme that is regulated in the country of its base. A QROPS may be of benefit if you are currently an expatriate from the UK or you are planning to become an expatriate in the future. Anyone with a UK pension scheme who now lives overseas as an expatriate, or is planning to leave the UK, can now transfer their existing pension provisions into a QROPS.
A QNUPS is a Qualifying Non UK Pension Scheme and is a flexible structure for funds that are not currently in a pension scheme. They can be particularly useful for UK situate property and benefits from an inheritance tax exemption in appropriate circumstances. A QNUPS is also a qualifying overseas pension but does not have the reporting requirements as there were no assets that previously were in an authorised and therefore tax relieved, UK pension.
We can offer tax and pension advice to help identify situations in which these types of schemes may be appropriate for your individual circumstances.