Ash Patel and Jason Silver have formed a highly profitable IT consultancy, and despite being only in their early 30’s the company already owns substantial income paying intellectual property. The firm now needs to recruit and train additional specialists as well as purchase additional new in house facilities for their expanding clientele . The estimated cash flow needs are initially, £150,000. They were considering traditional borrowing options until a friend mentioned that he had used his own pension funds as his banker, in similar circumstances..
Ash has saved £238,000 in a personal pension plan with an insurance company by making pension contributions each tax year since he left college and investing with his brother who works in the City. Jason has accumulated £126,000 in pension plans organised by his father’s IFA
After initial discussions with Nigel Sloam & Co – who advised their friend - the consultancy established a Small Self-Administered Scheme (SSAS) for Jason and Ash. Nigel Sloam & Co reviewed their existing arrangements to ensure that no penalties or loss of guarantees were incurred, and following this the existing pension savings were transferred into the new SSAS.
The consultancy was able, initially, to make a total pension contribution of £50,000 (on which it received corporation tax relief) for Ash and Jason so that the total funds within the SSAS after the transfers amounted to £414,000.
The value of the company was assessed by its accountant as £1.5 million, with no existing borrowing and therefore was able to offer a first charge over its assets to the pension fund trustees. As a result, the new SSAS could loan up to £207,000 from their new SSAS to the consultancy, which covers the outlay on pension contributions and the required new borrowing – in the knowledge as well that the firm’s corporation tax bill will have been reduced. In addition to the charge, funds are advanced on the basis of a five year loan term with equal annual repayments of interest and capital, which are expected to be met easily out of the likely enhanced cash flow of the company.