In the latest WealthTalk episode, Christian interviews WealthBuilders SSAS Director, Paul Brooks on how you can leverage your pension using a SSAS to create more income, before the age of 55. Paul has been helping clients to understand how they can leverage their existing pensions for over 10 years. Tune in to the episode to hear Paul explain what a SSAS pension is, why it puts you firmly in the driving seat compared to other pensions and the different strategies that are possible through a SSAS for creating new income.
In the latest WealthTalk episode, Christian interviews WealthBuilders SSAS Director, Paul Brooks on how you can leverage your pension using a SSAS to create more income, before the age of 55.
Paul has been helping clients to understand how they can leverage their existing pensions for over 10 years.
Tune in to the episode to hear Paul explain what a SSAS pension is, why it puts you firmly in the driving seat compared to other pensions and the different strategies that are possible through a SSAS for creating new income.
Resources In This Episode:
>> FREE SSAS pension resources
>> Connect with Paul Brooks on LinkedIn
Next Steps On Your Wealth Building Journey:
>> Join the WealthBuilders Community
>> Join the WealthBuilders Academy
>> REGISTER HERE FOR ACCESS TO FREE RESOURCES
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Unknown Speaker 0:01
The purpose of wealth talk is to educate, inform, and hopefully entertain you on the subject of building your wealth. Wealth builders recommends you should always take independent financial tax or legal advice before making any decisions around your finances.
Unknown Speaker 0:19
Welcome to Episode 185 of wealth talk. My name is Christian Rodwell, the membership director for wealth builders. And today I'm joined by our SAS director, Mr. Paul Brooks. Hello, Paul.
Unknown Speaker 0:30
Hi, Chris. How are you?
Unknown Speaker 0:31
I'm very good. Thank you. We decided to give Kevin a week off this week, didn't we
Unknown Speaker 0:35
say he's been working hard. So we thought, you know, I'll step in. And not that I'll be able to replace him, of course, but you know, hopefully do a good enough job of
Unknown Speaker 0:44
doing mighty, mighty fine job as always, Paul, and obviously, you're no stranger to the wealth talk podcast. So it's good to have you back today. And we were just all talking actually weren't way and sort of reassessing the last six months or so. And the economic climate, of course, has been, you know, slightly turbulent times, certainly leading up to Christmas, but people are looking at more creative ways now of generating income streams. And of course, we know one very, very powerful way of helping people to leverage something that almost everyone has in their life already. And that's their pension.
Unknown Speaker 1:18
Yeah, absolutely. Absolutely. Closing the name, I guess, the SAS director, so you know that that vehicle is a SAS pension. So I guess probably makes sense to me to give a sort of nice, easy overview of what a SAS is to start with Chris Ryan?
Unknown Speaker 1:34
Yeah, I think today, if we can do that, for anyone listening, who perhaps isn't sure what a SAS pension is, or wants to find out a bit more, and then we can lead into some of the ways that that can help people generate more income streams? Or, or, you know, I guess, expand on what they've already got coming in?
Unknown Speaker 1:51
Yeah, great. Absolutely. Okay. So the way I like to think about a SAS is really just simple, right? It's, it's almost exactly like another business. If you're a business owner and you, you're used to running a business, and it doesn't matter what kind of business it can be anything, right could be a retail unit, it could be you know, a barbers, it could be a property developer, it doesn't matter. But if you're a business owner, you understand how business works. And most people don't understand how pensions work, right? They're confusing, they're mystifying, their jargon filled, nobody really gets pensions, they kind of feel a bit like a dark heart. And then it's not a surprise to hear that, you know, we hear that all day, every day that we pretty much a sassy is more entrepreneurial. And it's it's so easy when you think about it this way. Because unlike a normal pension, where you're not in charge, you're not in control, you don't really have the option and the choice to do whatever you want, you're restricted nearly always to the stock market. A SAS puts you firmly in the driving seat. So it's almost exactly like being the owner and the director of another company. But it's just a really tax efficient business. Think of it that way. So it's a business that operates in almost exactly the same way that your normal business does. But it's wrapped up in a set of friendly tax rules. And because it's a pension, it gets these fantastic tax benefits, which which we'll obviously touch on, but try and sort of shift that mindset and imagine for a moment that your pension wasn't what it is today, but it was almost like a new business that you had. And you could use that use that new business in a really great number of creative ways.
Unknown Speaker 3:35
Yeah, and we've got lots of lots of information, which explains exactly what assassins who assassin is for. And anyone listening now who wants to do that? Probably best either drop an email to Hello at wealth builders, we can send you some videos, which we've recorded. And today we can focus more on, you know, how can you actually really benefit from a SAS pension and generate more income streams? So so we've put together a little list of those ways some people?
Unknown Speaker 4:01
Yeah, yeah, we have. Is it worth me just briefly touching Chris on eligibility at the very, very basic level for SAS? Yeah, by all means. Yeah. And the reason I say that is because a SAS isn't something that you can pull off the shelf right because it's like a business it needs creating and founding and setting up like a business steps. In other words, you can't just go online and pull a SAS off the shelf and and put your name and your details in and there you go, you've got your SAS, it needs to be created. And there are some a couple of basic points of eligibility right. So anyone listening here can understand, hopefully quite quickly and easily whether or not a SAS could potentially work for them. Number one, you have to have a limited company. It's really important. Okay, the reason for that is a SAS is a company pension. It's basically a sort of quite bespoke, niche type of company pension. So it's not like, you know, big schemes that people would be Use do if they've been in employment or they are in employment, where you know, where there might be hundreds or even 1000s of members, these are small self administered schemes. That's what SAS stands for. So you have to have a small business to found it to create it. And it has to be a limited company, limited company can do anything. I think I mentioned that a couple of minutes ago, doesn't matter what your business does, there are no restrictions to having a SaaS based on what your business does, as long as it's limited company, and it's active, and it's doing things. And number two, there's got to be some fuel of some kind. And most people's fuel for their SAS or existing pensions that they've created, either from personal money or most commonly from old employers. And sometimes even current existing employees, right, you know, they're paying into their pension, and they're paying it. So you got to have some fuel, and then other type of fuel is profit from a business if your business is making profit. And you don't need all that money in your life to fund your day to day lifestyle. You can pay money into your SAS, and it's really tax efficient. And I guess we'll come on to that in a moment in a bit more detail.
Unknown Speaker 6:12
Great. Now, we know that obviously, most people's pensions is money that goes out of your your life every month, and you have to wait until you know 55 At the earliest before you can start tapping into that. But of course, SAS opens up that box, doesn't it before the age of 55.
Unknown Speaker 6:29
Yeah, it does. It really doesn't. That's not because SAS has a different set of rules that allow you to take pension benefits earlier than 55. It has the same rules. When it comes to drawing money as a, I'm going to use the word pensioner retiree doesn't matter. It's not you know, the way people retire now is very different. But in the UK, you can tap into your pensions technically from the age of 55, although that will increase to 57 in a few years. A SAS doesn't have early access in that respect. But what it does is it uses the kind of entrepreneurial strategies that are available to it to allow you as the business owner to find new and creative ways to generate either new income streams into your life, or to make some of the existing income streams you might already have more efficient, and therefore in effect, save you money and therefore give you more income.
Unknown Speaker 7:25
Right? So there's something called a loan back pool. So let's start there. So what what does that involve?
Unknown Speaker 7:31
Well, a loan back is probably the most powerful tool that assesses got, and it's for people that know a little bit about SAS. And, you know, I'm sure anyone who doesn't after today will realise this is powerful, it is the most influential strategy for creating new income alone, that is, quite simply, the means the ability for the SAS to lend up to 50% of its total value to the limited company. And that can be for literally any genuine business reason. So if you are a property developer, and you're looking to find ways of getting access to lower cost finance, because let's face it, finance is becoming more and more expensive. Interest rates are, you know, rapidly increasing in a very short space of time, it's becoming more costly and more difficult to get finance for all types of things. But that's specifically for property. So if you're looking at ways of maintaining or increasing your profits by reducing your borrowing costs, a SAS loan back is a fantastic tool. Because it effectively allows you to borrow up to half of your own pension to do a property development. For example, if that's the legitimate business activity that you have in a limited company, and if the end result of that development, for example is that you can then refinance and retain that property. And that's a brand new source of income, then you've effectively used your Sass to help create a new source of income, the business straightaway. If you aren't in property, but you're in marketing or in manufacturing or in design, it doesn't matter what you do, you can use a loan back for any reason. So you might be looking to buy a new piece of software or some machinery you might be looking at, you know a new marketing campaign you might be looking at, you know, something that's going to create more revenue, more income into your business and therefore in the end, hopefully, as an owner or director of that business, more income in your life. You can use the line back for any purpose to help accelerate your business. It's it's as powerful as that, you know, and as simple as that really. There is one important consideration and that's that because you're borrowing money from your own pension the Rules stipulate that you have to be able to give some security for that money. And we won't get into the details of that on this. But of course, we can go into more detail if anyone wants to find out more. But you know, just like a bank will lend or like a bridging company will lend, they would want security. SAS will also need security for that money too. But what you're then able to do is not only create new income in the business by using that money, but actually, because the business is obliged to pay some interest, you effectively create a new stream of income to the SAS, you know, from from the business, you know, borrowing the money paying the interest for the privilege of borrowing that money. And of course, that reduces your profit and therefore reduces your tax
Unknown Speaker 10:45
bill, start to see the compounding effect here.
Unknown Speaker 10:48
Yes, it's great. You know, and we're not talking about anything particularly complicated here our way, you know, it's reasonably simple in concept. But there's sort of a double whammy of new income into the business and saving tax at the same time, because you're borrowing your own money. And instead of paying money to a finance provider of some kind or another, where that money goes out of your life, actually, you're keeping it in your life, you're just moving into the SAS, which doesn't pay any tax on its earnings, or its growth, or its income or its profit. And so all that money compounds up in a tax free environment forever.
Unknown Speaker 11:21
And of course, we've teach all of the strategies around what we're talking about today, don't we pull been helping people for many, many years create sasses. And the wonderful benefits here, and we've just put together a whole new resource, actually, haven't we right now, members area. So we've just really
Unknown Speaker 11:37
great, absolutely great and super proud of it, actually, it's, it's good. You know, it's always nice to do new things. And we worked hard on getting that set up. And you particularly Chris, so you did a fantastic job with that.
Unknown Speaker 11:51
So all of our new members will be getting access to that now. But let's, let's move on to the second second strategy here. And, of course, with the mortgage rate increase, a lot of residential property investors have been seeing their margins cut over the last few months. And of course, many, many more people who'll be changing mortgages in the year or two ahead, you know, you're gonna get to really feel the pinch. So more and more people are looking at commercial property now, Paul, as their strategy. And again, the SAS can really help here.
Unknown Speaker 12:22
Yeah, absolutely, absolutely. No, you're spot on with that. Look, I think one of the things that a SAS does really well, is being a commercial property owner, or landlord. And there are a couple of ways that you can make that work. So you could be a business that is currently renting your premises, right? Again, doesn't matter what you do, but you're renting your premises, you're effectively paying your money to someone else and building their wealth. Well, you could use your SAS to buy your own commercial premises. And then instead of paying money to somebody else, to rent the premises, you've actually created a new income stream for your SAS, still tax deductible for your business. So your business is still paying rent. But instead of you know, building somebody else's wealth, it's actually directly influencing you building your own wealth. Which, again, all that rental income goes into the tap into the SAS free of tax, and obviously built free of tax. And you can use that in a number of different ways you can let that money accumulate, you could do do a host of different things with that money. Yeah. Including if you wanted to tapping into it, if you were of an age where you could start drawing some, some benefits from your pension. If you own your own premises already, then you can actually have your SAS buy your premises from you. Which means you keep hold of the premises, right, you're not selling to somebody else, you're not losing that asset is still in your life. But you've effectively used the SAS to switch places to the businesses now, with cash from the proceeds of the sale of SAS owns a commercial property. The SAS then charges a rental income to the business, which actually creates a new stream of tax deductible cost going out from the business but it's not going to someone else. Remember it's going to your SAS. So you're cleverly switching where the income and the costs are in your life and making your income more efficient. Because if you've got a profit that owns premises, and it's doing well and it's profitable, you can create that additional stream of income which is obviously then going to come directly against the cost for your business on your on your accounts, and then you know, create that tax deductibility. So saving your tax Basically corporation tax, yeah. And of course, your business has got the money, because it's now sold the property, it's got the money, and you can use that money to accelerate your business in whatever way is best for you. Or, if you're owed money by your business, for example, as a director's loan, that could be a way of getting that money into your life tax free, because Directors Loan is a repayment of a debt or an income. And then you could use that money in a more creative way to buy assets that generate income, for example,
Unknown Speaker 15:32
salutely. And I suppose if thinking creatively, you could acquire commercial property, or you had commercial where you could add value, reconfigure, and then perhaps, rent out that space
Unknown Speaker 15:45
to somebody. That's another great example. Absolutely. So if if you could find property that has the ability to be reshaped, carved into smaller chunks, so let's imagine this given example, let's imagine you need some office space for your business, you could buy an office that might have the ability to be sliced and diced into small chunks. And there's a really neat way that a SAS can help you generate completely new streams of income here in a tax efficient way. And that's by buying the premises, leasing it to you as the master tenant. So your business is the master tenant, but giving you the legal right to sublet space. And then you as the business owner can, you know, in a number of different ways, partition off that office, let's say and you could make it three individual pieces of office space instead of one bigger space, your business as the master tenant has to pay a rental income lease income back to the SAS, but your business then can own any income that it creates through subletting the extra parcels of space. So let's imagine, you know, I'm just going to pick some figures here, right? Don't worry about them being accurate. It's just an example. But so imagine you find a space, and you have an open market lease agreement for a 10,000 pound a year rental income. So your business agrees to lease the space from the SAS for 10,000 pounds a year. And you can creatively add or partition off to additional spaces. And those two additional spaces can generate 8000 pounds a year each sublet, you've now got 16,000 pounds worth of rental income from other businesses coming into your business. But your business has only got a 10,000 pound obligation to the SAS. So you've made even in that very simple example, where 6000 pounds a year, profit, additional income, and as the business owner and therefore more more than likely the shareholder and the director of that business. You can choose how and where you are and what you want to do with that money. Yeah, you can reinvest it in the business, you can use it to do more things or you can draw it out in one of several ways and put that income in your life. Okay. It's stuck a commercial HMO this sometimes called right, you know, you creatively using commercial buildings in a way that let's face it right now, when, you know, post pandemic, lots of businesses don't need as much space. So, you know, there are a few of businesses that need big, big individual spaces, whether it's offices, whether it's other types of things, and lots of commercial properties have been repurposed, aren't they. But this is one creative way of still being able to use a SAS asset to help you create income in your life today, even if you're not at an age where you can tap into your own pension to draw benefits.
Unknown Speaker 18:59
You mentioned at the beginning poll about existing business owners who you know, got profits, perhaps excess profits, and obviously, there's always tax to pay somewhere. But what are some of the ways that again, a SAS might be able to help out in this scenario?
Unknown Speaker 19:15
Well, one of the great benefits of pensions is that you get tax relief for paying money in in most cases, it's the number one reason why people start a pension, you know, because they get tax relief on the money when it goes in. And there are broadly two ways to pay money into a pension. But for most business owners, in most circumstances, having their business pay a company pension contribution on their behalf into SAS allows them to shift that chunk of profit whatever it might be the the allowance each year for most people on a normal day to day basis is 40,000 pounds. Is each tax year. And there are times where you can pay more than that. But let's just assume for now you've got a business, you're making a healthy profit, and you've got 40,000 pounds worth of profit in your business before the end of your business year that you don't need or want to draw and take as a as an income of some kind, as the business owner, you can pay up to that 40,000 pounds into your SAS. And that 40,000 pounds is then a tax deductible expense for your business. So you've immediately created the tax saving, by paying that money in, you know, in round terms, I mean, obviously, the corporation rate corporation tax rate is changing. But, you know, in round terms, roughly an 8000 pound corporation tax saving on that money, which is huge, right, you're not losing that money. And this is again, the huge difference between assassin or sort of more traditional pension that most people will be familiar with, you're not losing that money in a back hole. And you kind of position it nicely at the beginning here, where it kind of, you know, you feel like it's out of your life, and it's no longer your asset anymore. Because the SAS is entrepreneurial, it allows you to do these different things, all you're doing is just cleverly shifting, where that money is held. And when the money is in the SAS, of course, remember we talked about point number one that option number one, he was alone back, got this immediate ability to be able to borrow some or maybe even potentially all of that money straight back into your business. So you don't always even necessarily lose the cash flow of that money. You know, because the business can potentially borrow some or all of it back straightaway. This is that
Unknown Speaker 21:41
really powerful circular personal economy where it just keeps recycling round and round around.
Unknown Speaker 21:47
Absolutely, you know, you pay the money in, you get the tax relief, which means actually your business doesn't have to account for and put away that tax money. And therefore you've automatically got 8000 pounds worth of cash in your life, you can do other things with the business. Sorry, the SAS has got the money, it can do any number of different things with it, including lending it back to the business to give the business more cashflow, which also then creates a new tax deductible expense, because the interest rate on that loan is then something that you know, sucks profit and therefore reduces tax from the business. It's just hugely powerful, hugely powerful. In some cases, you know, if you've got a business, which is owned by a couple or a family, and you've got multiple members in the SAS and the SAS can have multiple members, it's again, one of its uniquenesses, you know, you can actually have up to 11 people in SAS, with any other pension, you only have one person and therefore, you're kind of multiplying your admin costs with a SAS, you've got one scheme. So let's imagine you know, you've got could be partners could be family 234 members, each person gets that 40,000 allowance. So if they're a genuine director or an employee, you're fat business directors usually are, you know, it's very easy for directors to pay large contributions in, you could be doing 234 times 40,000 pounds each year. So if you've got a really profitable business, and you're paying a lot of corporation tax, this could be a game changer for you actually, because then you can use that money in a number of different ways buying commercial premises, you know, loaning to your business, doing other things with that money. So you're minimising the tax and maximising the growth on the money, which of course, in the end will be a legacy for your loved ones, you do a good job of it.
Unknown Speaker 23:43
I was just going to say that, really, and this is where this whole financial legacy piece really ties in, doesn't it? Because the pension doesn't die when you die, it passes on to the next generation and the next and the next and hopefully, with the wisdom and the lessons to continue to maintain and grow that. Yeah,
Unknown Speaker 23:59
absolutely. I mean, it's basically just a perpetual legacy that rolls on, as you say, down the generations. And the great thing about it actually is if looking at when you're leaving a legacy, sadly, someone's no longer here, right. But what you've left them in a SAS is a vehicle that actually gives them immediate access to the money, because it's not your pension, you've inherited it, but it's a death benefit. So the rules don't say you have to be 55 or 57, or whatever the new minimum pension age in the UK will be in years to come. If you've passed away and your loved ones need access to that money, they can have access to that money without having to draw it all out. They can leave it in the SAS and just tap into what they need. It might be a small lump sum, it could be drip feed of income, you know, any any combination of those things. But if the lion's share of the wealth is still accumulated in the SAS, it's still wrapped up in that friendly tax wrapper that will continue to pass on down the generations. As long as it's managed properly, and they've got that flexibility and choice to tap into that income if they need to.
Unknown Speaker 25:06
One of the other taxes we've not mentioned is the inheritance tax, which again, it's free free from inheritance.
Unknown Speaker 25:12
It absolutely is. And that's because a SAS is based on a trust deed. And trusts are exempt from inheritance tax because they're ring fenced outside of your estate. So your will if you have one and if not, then some some government statutory laws, called the laws of intestacy will take care of who gets what from your estate, but it's all subject to potential inheritance tax. If you've got a SAS, that's ringfence because trusts don't form part of that calculation. They're exempt from that calculation. So you know, again, you're maximising the legacy you pass on by minimising the tax impact.
Unknown Speaker 25:51
Well, that's been quite an insightful session. Paul, I hope we've definitely triggered a few light bulb aha moments there for our listeners. And, you know, we love helping people assess and do that every day. So as I said, at the beginning, what I'll do actually, I'll put a link in the show notes for today, to some videos to some resources. We do a webinar as well, every couple of months, don't we? So we'll be doing next SAS webinar in April, if anyone wants to jump on. I believe probably you and Kevin will be there. Talking through obviously sharing everything on screen as well answering questions. And that's been great, Paul, thank you.
Unknown Speaker 26:29
My pleasure. Enjoyed it as always, you know, I just love chatting about the impact SAS can have you know, in it, it's definitely that best kept business owners secret. You know, we're trying as hard as we can to spread the word about it amongst lots of other good things, too, of course, but yeah, it just never ceases to amaze me just how impactful the SAT having a SAS can be.
Unknown Speaker 26:52
Yeah, and if you're listening now and you just want to jump on and have a chat, then do reach out to us. Drop an email to Hello at wealth builders.co.uk and our team will be straight back to you. And we can set up a call. Paul, I look forward to having you back on again soon.
Unknown Speaker 27:08
Yeah, yeah, let's try not to leave it's quite so long next time I'll I always love it. So I'm definitely definitely looking forward to the next session. That's for
Unknown Speaker 27:18
sure. Alright, thanks for listening today. If you enjoyed this episode, please hit the share button. Send it somebody who you think might find this of use. And I'll be back next time. Next week. See you then. Bye.
Unknown Speaker 27:32
We hope you enjoy today's episode. Don't forget that we are constantly updating our resources inside the wealth builders membership site to help you create, build and protect your wealth. Head over to wealth builders.co.uk/membership right now for free access. That's wealth builders.co.uk/membership
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