SSAS can still be used as a significant strategic asset for business owners despite the IHT changes, says Caitlin Southall is Director of SSAS Transformation and Proposition at WBR Group.
From April 2027, the UK government’s changes to Inheritance Tax (IHT) will bring unused pension funds into scope for IHT. This unpopular move might impact the attractiveness of saving into a private pension for some to save towards their retirement, dependent on their circumstances and non-pension wealth management plans. However, Small Self-Administered Schemes (SSASs) continue to stand out as a uniquely strategic tool for business owners due to their ability to balance business growth and retirement saving.
July bought with it both sun, another Lioness trophy, and more importantly for the pension and advice world – the draft rules for how the IHT reform will actually work in practice. The industry reaction has been almost universally challenging of the proposal – especially during a time where pension engagement is woefully under par in the UK. The government should be doing more to incentivise responsible pension saving, not adding further barriers to this.
Under the draft rules, which are effective from 06 April 2027, pension assets not drawn before death may be included in the deceased member’s estate for IHT. Personal Representatives (PRs) will be responsible for reporting and settling the tax liability, while Pension Scheme Administrators (PSAs) must provide valuations within four weeks of death notification. For pension schemes like SIPPS and SSASs, which offer a huge advantage of holding direct commercial property, and non-standard investments, valuation within these timescales is almost impossible.
Death in service benefits and scheme pensions from Defined Benefit schemes are excluded from the new rules.
A further update subsequent to the issuance of the draft rules has confirmed that the changes will apply regardless of the age that the deceased member passes away. This seems very unfair for the very small minority that pass away before age 55 as they are unable to ‘use’ the pension before it becomes subject to IHT.
Notwithstanding the impact that the changes will have for pensions and financial advice, SSAS remains a powerful and versatile pension structure for business owners. There’s a reason that SSASs have been around for over 50 years – its enduring value lies in its ability to serve both personal and business goals simultaneously and in compliment to each other.
SSASs offer trustees a unique control over the pension assets, including choice of investment, governance and strategy. Unlike a SIPP, SSASs allow direct investment into commercial property, as well as loans back to the sponsoring business. This dual-purpose approach enables pension funds to actively support business growth whilst balancing long-term retirement planning.
One of SSAS’s most valuable features in the context of IHT planning is its discretionary death benefit structure. Trustees can allocate benefits based on expressions of wishes, rather than fixed nominations. This flexibility allows for more effective management of IHT exposure, especially when combined with regular reviews of member intentions and family circumstances.
Advisers should encourage clients to keep their nominations up to date and ensure trustees are aware of the member’s wishes. This proactive approach can help mitigate IHT liabilities and ensure benefits are distributed in line with the member’s estate planning goals.
Some clients may want to maximise or ‘supercharge’ their contributions. In these circumstances, a Defined Benefit SSAS might offer even greater tax efficiency. Contributions are calculated to meet a target pension, often resulting in higher contribution levels (and therefore tax relief, as well as a corporation tax saving) compared to its Defined Contribution equivalent. For those directors or business owners nearing retirement, this is a great opportunity to maximise pension contributions in a short timeframe.
DB SSASs tend to give a more predictable income in retirement, with actuarial assumptions being used to calculate the amount of contributions required to equate to a desired annual income. When considering the IHT changes, this might be advantageous as it’ll allow more accurate or predictable wealth transfer plans, with any chosen scheme pension falling outside the scope of the IHT net.
While it’s inescapable that the IHT changes introduces additional challenges for business owners and financial advisers alike – not to mention the pensions industry – SSAS remains a huge opportunity for business owners or senior employees of a company. The flexibility offered by its structure, unique features such as loanbacks, the ability to invest in commercial property and pooling of multi member assets, positions it perfectly for the evolving and often agile needs of more entrepreneurial clients.
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