Fresh Thinking

SSAS Loan Backs

December 2008

I used to refer to this as becoming your own banker!

Over the past few years Self Invested Personal Pensions or SIPPs have received a lot of attention. However their brother the Small Self Administered Scheme or SSAS has been left in the dark. Well SSASs still have certain advantages over SIPPs and Loan Backs are one of them.

This little used piece of legislation allows a SSAS to lend up to 50% of its value to the sponsoring employer (Limited Company, LLP or Partnership) as long as certain criteria are met. In general, the criteria is:

1. Interest rate has to be charged at a commercial rate (anything over base rate + 1% is acceptable).

2. A charge over an asset has to be given to cover the value of the loan. Examples of suitable items are property, vehicles or machinery. I've even heard of a Rolex watch being used!

3. The maximum term is 5 years. However if good reason is given the loan can be rolled over for another 5 year term.

Existing pension funds, including SIPPs can be transferred into a SSAS and loans taken immediately.

There are some other points to bear in mind. The cost to set up a new SSAS is typically in the region of £700 + VAT. There is also an annual administration fee which is again typically around £700 + VAT and scheme accounts needs to be drawn up annually which typically costs another £600 + VAT.

However a SSAS does offer the ultimate in terms of flexibility. The sponsoring employer even holds the cheque book for the SSAS and is be the sole signatory.

In the current climate the flexibility a SSAS provides could be the answer if your local Bank Manager has become a little less helpful over recent months!

Enterprise Zone Syndicates

December 2008

This is an investment opportunity that suits 40% tax payers.

Enterprise Zones where first introduced way back in 1981 by the then Environment Secretary Michael Heseltine.

The intention was to stimulate industrial and commercial activity in areas targeted for economic regeneration.

To attract private sector investment, 100% initial tax allowances are given on commercial property development in Enterprise Zones.

Since 1984 in excess of £1 billion has been invested in collective Enterprise Zone Investment Schemes. The Government has announced that these schemes will cease towards the end of 2011.

Due to the generous tax incentives and the very limited supply of available land very few attractive EZ's come to the market nowadays.

When they do, demand is often ten times more than availability!

A new EZ is being launched which invests in a new £300,000,000 77,000 sq ft Data Centre on the massive Cobalt Business Park in North Tyneside.

The minimum investment is £50,000 which requires the individual investor to write out a cheque for £21,650 as the balance is funded by a loan which is secured solely on the Data Center itself. A 40% tax payer would receive a tax rebate/saving of £19,790, thereby meaning a net investment of just £1,860 for a £50,000 share in the syndicate.

If you are interested in more details please click here to download a summary document.

NB: EZ syndicates are a complex investment which are only suitable for higher rate tax payers who are experienced investors. Due to being invested in a single property they should be viewed as high risk.

The 8th Wonder Of The World

December 2008

Albert Einstein, a not unintelligent chap, was once asked what he thought was the greatest of mankind's discoveries. His answer was "compound interest". He even went so far as to call it the Eighth Wonder of the World.

Now whilst you might argue there have been greater discoveries, compound interest surely warrants an investigation to see why Einstein was so impressed.

Lets look at an example, albeit an extreme one!

Let's say Christopher Columbus made an investment in the new world's future in 1492. If he had placed a single penny in a 6% interest-bearing account and instructed someone to remove the interest every year, the value of the interest earned to date (2008) would be just over 31p. Not too impressive, is it.

But if he LEFT the earned interest to compound over the 516 years guess what the account would be worth now? How about £114,242,178,628.50 That's £114 BILLION!

Maybe you can now see why Einstein was so excited. Compounding is VERY powerful.

Although I can hear you saying "but I haven't got 513 years to make compound interest work for me", you can benefit from the principal nonetheless.

1. Get rid of debt as fast as possible. With debt you have compound interest working against you!
2. Have a disciplined regular savings strategy.

Now there is some good advice!

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