How a SSAS can borrow more than 50% LTV without breaking the rules

by | May 11, 2020

If you want your SSAS to borrow more than 50% LTV – without breaking the pension rules… Read on!

A SSAS (Small Self Administered Pension Scheme) is a really useful tax planing tools for many business owners. Being a UK pension there are exemptions available to reduce the taxes paid on rental income as well as capital gains when investments are sold.

With such a flexible and useful tool available, many Landlords have turned to their SSAS as being the best place to make property investments whilst at the same time as reducing taxes due.

Landlords wanting to grow their property investment portfolios have often followed a strategy where their cash is used as the purchase deposit, and the rest of the investment comes from borrowings. The higher the loan-to-value percentage (LTV) the lower the amount of cash is required, as the majority of the purchase price will be coming from their ‘buy-to-let’ mortgage. 

But here lies the issue – a SSAS can only borrow 50% of the value of its total assets – so if you have a SSAS with £500,000 of cash, it would only be able to borrow another £250,000 (which is 50% x £500,000). making a maximum property investment of £750,000.

If the SSAS is VAT registered and a property transaction adds VAT to the price that needs to be paid, then this 50% limit is on the WHOLE price, meaning that the VAT element ends up further restricting the perceived LTV that can be achieved. In this example, the £750,000 purchase price would be INCLUDING the VAT payable on purchase.

So – how can a SSAS end up owning a property where the bank lending exceeds this 50% limit? It must be possible, otherwise this post would not have been made!

Well here is the answer – let the SSAS invest into the Units of a special type of Exempt Property Unit Trust. Then it is the Unit Trust that is taking on the ‘borrowing’ – all the SSAS is doing is investing into units which in turn earn the profit as income (tax exempt too!).

In the above example, where the SSAS had £500,000 of cash, it could buy 500,000 x £1 units as a fully allowable investment. The Unit Trust (called an X-PUT in our planning) now has £500,000 as the deposit on a property purchase. It can approach lenders and they will not have to comply with SSAS rules or UK Pension Rules when lending. If the market would support a LTV of 75% or even higher (85%) – then that is up to the lenders assessment of the affordability related to the income/rent due.

The SSAS would end up with 500,000 units and the unit trust could end up with a property purchase calculated as £500,00 plus a 75% LTV mortgage of £1,500,000 – or a £2m purchase instead of the £750,000.  

All because the SSAS Trustees asked us how their SSAS could borrow more than 50% LTV!

In existing situations where property investment has already been made and the COVID-19 situation has resulted in the sponsoring employer needing access to cash – a switch from ‘property’ to ‘units’ allows property to be re-mortgaged to raise cash that can be passed from the Unit Trust back to the SSAS…. which can then be deployed to assist the company and/or the Trustees through what is a unique and difficult time.

There is nothing stopping a wealthy entrepreneur from managing their affairs so that their SSAS can access the maximum amount of borrowing. 

Most Advisors, such as IFA’s and Accountants do not have the internal experts to assess a client’s FULL situation – and come up with the best overall strategy.

As I have worked in the tax planning field for over 30 years, I have personal access to experts in all taxes and can combine these experts into a unique service that really does go beyond what you’d get from your normal ‘Advisors’.

Every wealthy entrepreneur or property investor I have ever met had their own Accountant, Solicitor and Financial Advisor – yet in 90% of cases we were able to dramatically able to improve their overall exposure to UK taxes.

What is vital is the proper implementation – with care at every stage.

This is why we offer a FREE consultation – as it lets us explore the current situation before jumping in with ‘solutions’.

If you are interested in reducing your current and/or future income tax exposure, do not hesitate to call or email us now. If you have a SSAS where the 50% lending limit is an issue, let’s talk!