In this article we highlight the process of an Optician Practice utilising SSAS for equipment purchase.
Optician Practice Utilises SSAS for Equipment Purchase
Background
David Thomas and Chris Taylor, partners in an opticians practice, are looking to purchase a new retina scanner that has just come on the market, valued at £175,000. Following a recommendation from their financial adviser, they decide to use a Small Self-Administered Scheme (SSAS) to facilitate this purchase by taking an authorised employer loan. The partnership will put up the practice property as security.
Pension Fund Transfer
They each transfer their existing pension funds into the SSAS:
• David: £200,000
• Chris: £160,000
This gives the SSAS a total value of £360,000.
Authorised Employer Loan
SSAS rules allow loans to the sponsoring employer under specific conditions
• The loan amount cannot exceed 50% of the net asset value of the SSAS.
• The loan must be secured with a first legal charge on an asset of equal or greater value
than the loan capital and interest due over the term of the loan.
• The loan term must not exceed five years.
• The interest rate must be at least 1% above the average high street base rate of the main
six banks.
• The loan must be repaid by equal instalments of capital and interest.
• At least annual repayments must be made.
In this case, the SSAS can lend up to £180,000 (50% of £360,000), which is more than sufficient to cover the cost of the retinal scanner.
Loan Process
1. Loan Agreement: The SSAS trustees and the opticians practice agree on the loan terms, including the interest rate and repayment schedule.
2. Security: The loan is secured against an asset of the practice, in this case the practice property. This has been valued by a RICS surveyor at £290,000 so easily covers the loan amount and interest due.
3. Disbursement: The SSAS disburses the loan amount to the practice upon confirmation from the solicitor that the first legal charge is in place.
Purchase of Retinal Scanner
The practice uses the loan to purchase the new retinal scanner, enhancing their diagnostic capabilities and improving patient care.
Benefits
• Tax Efficiency: Interest payments on the loan are tax-deductible for the practice and tax-free for the SSAS. The loan repayments can be further invested to provide tax free growth.
• Business Growth: The new retinal scanner improves the practice’s service offerings, potentially increasing revenue.
• Retirement Planning: The partners’ pension funds are effectively utilised, contributing to their long-term financial security
Conclusion
By utilising a SSAS, David and Chris successfully funded the purchase of a new retinal scanner, leveraging their pension funds and an authorised employer loan. This strategic move not only supports their business growth but also enhances their retirement planning.
This case study is also available as a downloadable pdf here.
