SIPP versus SSAS – the differences and rules

Chris Broome – Chartered Financial Planner

While Small Self-Administered Schemes (SSAS) and Self-Invested Personal Pensions (SIPP) are both investment regulated pension schemes with similar basic tax rules, they differ significantly in their structure, governance, and investment capabilities.

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Key Characteristics of SSAS

A Small Self-Administered Scheme (SSAS) is an occupational pension scheme typically characterized by:

  • Established by business directors seeking greater control over pension investments
  • Members are usually employees or directors of the sponsoring company
  • Flexible membership with no strict member limit
  • Each member typically holds a trustee role
  • Allows members to have a notional share of scheme funds, including non-insured assets like property

Key Characteristics of SIPP

A Self-Invested Personal Pension (SIPP) is a personal pension plan distinguished by:

  • Established by insurance companies or specialized SIPP operators
  • Open to anyone meeting provider eligibility requirements
  • Usually requires a minimum fund size due to higher operational costs
  • Provides members with significant investment control
  • Allows employers to contribute and potentially manage payroll deductions

Investment Flexibility: SSAS vs SIPP

SSAS Investment Advantages

  • Can lend money to sponsoring employers
  • Able to invest up to 5% of fund value in sponsoring company shares
  • Can purchase shares across multiple sponsoring employers (total market value less than 20% of scheme value)
  • Potential to own 100% of a company’s shares (if value doesn’t exceed 5% of SSAS value)

SIPP Investment Considerations

  • Cannot make loans to members or connected persons
  • Theoretically can invest up to 100% in company shares
  • Investments in companies controlled by the member are considered “taxable property”
  • Investment subject to SIPP provider’s specific guidelines

Maximum limits for borrowing in a SIPP/SSAS

A scheme may borrow an amount up to the equivalent of 50% of the net value of the fund prior to the borrowing taking place. The value of the fund for this purpose would not include the investment that is to be purchased with the borrowing.

As an example, a SSAS with a total value of £250,000 all held in cash deposits could borrow up to £125,000 giving it buying power of £375,000.

Care should be taken when calculating the maximum additional borrowing that can made where the scheme already has some borrowing in place. In these circumstances, the net value of the scheme’s assets should be calculated taking into account the value of any current borrowing before the 50% limit is set. From this limit, it is then necessary to deduct any current borrowing to determine any additional borrowing that may be available.

As an example:

  • SIPP holding a commercial property valued at £600,000
  • Outstanding debt of £100,000
  • Looking to acquire another property using additional borrowing
  • The net value of the scheme is calculated as £600,000 minus £100,000 = £500,000
  • Initially, 50% of this net value is £250,000 but from this sum, we must deduct the current debt of £100,000
  • Meaning additional new borrowing is limited to £150,000

Borrowing can be from any source, be it an unconnected third party or a connected party to the scheme but if the latter, the terms of the borrowing must be on commercially available terms.

Purchase to include VAT

A further misunderstanding is that additional borrowing can be obtained to cover the temporary need to fund VAT on a property purchase where the scheme elects to opt for VAT and can thus reclaim it.

In these circumstances, any borrowing to cover the VAT element must fall within the maximum 50% of net scheme assets rule.

Trustee Responsibilities

Both schemes have administrative obligations, but SSAS requires more direct member involvement:

Common Trustee/Administrator Duties

  • Register with The Pensions Regulator
  • Register the pension scheme with HMRC
  • Report scheme-related events
  • Provide member information about benefits and transfers
  • Manage tax relief on contributions
  • Pay applicable tax charges

Distinctive Administrative Approach

  • SSAS: Higher member involvement in scheme administration
  • SIPP: More hands-off approach, with provider typically managing administrative tasks

Choosing the Right Scheme

The most appropriate pension scheme depends on:

  • Membership composition
  • Desired level of administrative involvement
  • Specific investment objectives
  • Individual financial circumstances

While both SSAS and SIPP offer investment flexibility and tax advantages, they cater to different needs and preferences in pension planning.

How to Make Voluntary Contributions

If you’re eligible to make voluntary contributions and want to take advantage of the April 2025 deadline, visit the HMRC website to find out how check your current NI record to see if you have any gaps and how to pay.

Conclusion

The April 2025 deadline for voluntary National Insurance contributions is a critical date for anyone looking to boost their state pension. If you’re missing years of NI contributions and want to make voluntary payments to fill in the gaps, now is the time to act.

Don’t wait until the deadline is too close — review your National Insurance record, determine your eligibility, and make the necessary contributions before it’s too late.

For those unsure about their situation or needing guidance, consulting with a financial advisor or HMRC will help ensure you’re on the right path. The extra effort today can make a significant difference to your future financial security and your retirement.

Please note:

The content of this blog is intended for general information purposes only.