Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20Pensions and Small Business – Ticking Time Bomb or Hidden Treasure? | 14 A need to know basis W e’ve so far established the pension basics: that pensions freedom provides the opportunity, from the age of 55, to use accumulated pension funds in any way you wish. But there are tax implications. Only 25 per cent of the accumulated, untouched, pension fund is available tax free, under current regulation. However, further withdrawals are subject to income tax in the year those withdrawals are made. This could mean a sizeable portion of pension withdrawals being taxed, potentially at the 40 per cent or 45 per cent rate for higher earners. Pension-led funding works differently. This form of finance is aimed specifically at business owners and directors who, in order to make it commercially viable, have accumulated pension funds greater than £50,000 and want to back their own business. They don’t need to be 55 or over, and should there be more than one owner director in the same business, the pension funds can be amalgamated to invest in the business. The pension pot, or pots, are placed into either a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS). Both are pensions that allow the owner to make decisions as to where their money is going to be invested, in conjunction with professional advisors and the pension scheme’s trustees and fund managers. Clifton advises that the maximum advance from a SIPP should not exceed 60 per cent under normal circumstances and 65 per cent for certain exceptions. Regulation dictates that a SSAS loan must not exceed 50 per cent. Crucially, a SSAS loan offers the benefit that there is no tax to pay on the loan advance. Just as importantly, the capital and interest taken from the SIPP/SSAS has to be repaid by the business directly to the pension fund. With interest on the repayments usually set at around 10 per cent or more, there is also the potential for significant pension fund growth. Subject to a number of factors, including the repayments being met, the owners are even free to access the scheme again for further business funding if required. One family that took advice about using their pension pots to invest in their business, considered their options and then acted upon them, is the Tarlings. Andrew and Philippa Tarling, who run a pub in Sherbourne, needed funds to buy equipment vital to starting an ice cream business. Andrew says that, as part of the process, their accountant wanted to know the size of their pension pots. His wife had “cursed for many years” that her pension had failed to grow very quickly.