RP case studies: Making SSAS work during difficult times

In the latest RP case study, Elaine Turtle looks at a bittersweet SSAS example where tax-free cash helped ease the pain of a devastating medical diagnosis

We have a small self-administered scheme (SSAS) that was set up for Sandra and Julian around 20 years ago.

The SSAS was initially set up in order to purchase the premises for the business run by them. Over time their business has grown and expanded, as the children grew older, they joined the family enterprise and also joined the SSAS in the last few years.

The business premises that they purchased had a lot of land and due to the business expansion, they needed an even bigger site.

Following a board meeting they decided that the trustees of the SSAS would build an extension onto the existing building, providing additional space but without the need to move, with all the upheaval that would come from that.

At the time that they wanted to undertake the extension there was still a small mortgage on the commercial property which they paid off with cash held within the SSAS and then the uplift in the value of the property, allowed the trustees to borrow 50% of the fund value, which was sufficient to build the extension.

The extension was duly built and the rent coming in from the commercial rent has been paying off the mortgage. As the rent was more than the monthly mortgage, and the trustees had decided to make overpayments, there was not much of build-up of a cash reserve in the scheme.

Bad news

Unfortunately, Sandra has just found out that she has a degenerative brain disorder, it will take a few years before she will be fully incapacitated, but in that time she wants to do all the things that were on her bucket list while she is able to enjoy them.

In order to fund her adventures, she would like to access her tax-free cash from the scheme, it was always her plan to use this for a trip to Australia, New Zealand and Fiji.

The problem she faces is that there is not enough cash in the scheme for her to have her 25% tax-free cash and although contributions could be paid, the company does not want to pay more cash into the scheme at this time due to the business having to deal with Sandra not being around in the future.

To cover her role they are now looking to recruit some new people to help the business continue to grow and be profitable.

What are the options?

The trustees of the SSAS came to us to ask what options there might be for them. We explained that the trustees could borrow against the property and that would provide the cash that the scheme needs to pay out Sandra’s tax-free cash.

The trustees spoke to their local bank who they have dealt with for many years and they were happy to arrange this as the loan to value was low.

This made the trustees think. Julian has no plans to take his tax-free cash presently and not until he sees how things go with Sandra.

But we explained that once you have borrowing from the scheme, if you want to borrow more, then you have a double whammy of taking 50% of the net value of the scheme, then taking the existing borrowing off again, so in some cases, it can mean not being able to borrow more.

With interest rates being so low the SSAS scheme members and the business decided that they would take extra now so the option was there for Julian. The rental more than covers the new mortgage payments and it would give Julian and Sandra new options in having to deal with her illness.

Though a very sad time it was good to know that Sandra was going to be able to take her trip of a lifetime that she had always planned and enjoy herself while she is able to.

Elaine Turtle is director at DP Pensions