Company Matters : Benefits of SSAP Plan
The Sunday Business Post
Each week, financial, legal and business advisers will answer your quesations on a range of small business issues. If you are facing a business dilemma or simply need a sounding board, then contact Company Matters in complete confidentiality.
Questions should be sent to:
Company Matters, The Sunday Business Post,
80 Harcourt Street, Dublin 2. E-mail: email@example.com
This week’s expert is Cathal Lawlor, Tax Manager with Mazars
I want to set up a self-administered pension scheme.
I have been told this would allow me to plan for my retirement in a taxefficient way. In addition, changes made in the most recent finance bill have apparently made this option even more attractive.
Can you tell me exactly how a self-administered pension scheme works? What are the potential benefits?
Small self-administered pension schemes (SSAPs) are similar to regular occupational pension schemes. They have become popular in recent years largely because the investor has control over any investments made by the pension fund and also because they have a very transparent costing structure.
SSAPs are created by a company as a separate, irrevocable trust, offering significant benefits to the selfemployed and proprietary directors.
If used as a pension fund, an SSAP can offer numerous tax benefits.
Contributions to a pension scheme from a company are allowed as a deduction against the company’s profits, immediately saving 12.5 per cent corporation tax. A benefit-inkind charge on the director, currently at 47 per cent, does not arise.
Any income earned by the fund, in terms of dividends, interest or rental income, is exempt from income tax.
The fund is also exempt from capital gains tax on the capital appreciation of assets upon disposal.
The gross roll-up nature of the investment ensures the maximum amount of earnings and capital appreciation can be retained for further investment without incurring a tax charge.
This is particularly important from a wealth management point of view.
Upon retirement, an individual is entitled to draw down 25 per cent of the value of the trust fund without incurring a tax charge.
The remaining 75 per cent can either be drawn down subject to income tax, transferred to a further tax-exempt vehicle – an approved retirement fund (ARF) – or it can be used to purchase an annuity.
The ARF is particularly attractive because, unlike many annuities, it can be transferred to an individual’s estate on death, possibly becoming the largest asset an individual will bequeath.
While SSAPs have been around for some time, the Revenue Commissioners’ prohibition on pensionfund b or rowi ng was a drawback.
Provisions in the Finance Bill 2004,which is due to be enacted in April, remove this restriction. This has made the SSAP an extremely attractive tax-efficient investment vehicle.
Typically, most SSAPs operate on a 1 per cent charge per annum on the gross value of the fund.This is competitive when compared to other pension products.
You should be aware that there are some restrictions on SSAPs, including rules that forbid investment in “pride of possession” articles, including vintage cars and paintings.
All transactions carried out byapension scheme are on an arm’s lengthbasis.
In summary, new provisions in the Finance Bill 2004 have made SSAPs one of the most tax-efficient and effective investment vehicles available.