Technical Briefing: SIPP OR SSAS Lending 2012
Contributed by MW Pensions
22 April, 2012
Contributed by MW Pensions. [www.mwpensions.co.uk]
This leaflet is solely for the use of financial and other professional advisors, members of the public should not rely upon it
Can a SIPP or SSAS lend money?
Yes. But note that HMRC state that all loans are only acceptable if they are genuine investments of pension schemes. They should be "prudent, secure and on a commercial basis".
Who can it lend to?
A SIPP can lend money to any unconnected third party, be it an individual or a company. However, it cannot lend any money to any business or individual who is connected in any way with the member. A SSAS has the same restrictions as a SIPP, except a SSAS is allowed to loan money to a sponsoring employer.
How much can be loaned?
A SIPP can loan up to 100% of its net assets. If a SSAS is lending to an unconnected party, the same rules apply. But if a SSAS is lending to a sponsoring employer, the maximum loan is 50% of the net assets
Who makes the loan?
It is the trustees who make the loan and accordingly they will be responsible for agreeing the terms and conditions etc, not the member.
What should the terms be if the loan is to an unconnected party?
The loan must be on a "commercial" basis. Our understanding is that SIPP or SSAS lending should be on the same basis that a bank would lend the money, assuming the bank was a willing lender.
What if the rules are broken eg if a SIPP or a SSAS makes a loan to a connected party?
The loan will be treated an Unauthorised Payment and attract a tax charge of 40%. If the Unauthorised Payment exceeds 25% of the total fund value, there is a Scheme Payment surcharge of a further 15%, bringing the total tax charge up to 55%.
What about security?
The loan should be secured against assets which, if there was a default, could be taken into the SIPP or SSAS as a wholly tax free investment commercial property, for example.
Important note: We no longer allow lending from an MW SIPP
The remaining questions specifically apply to SSAS loans to a sponsoring employer.
How long can the loan be for?
Up to 5 years, but no more. The loan can be rolled over no more than once. A rollover is only allowed if the employer is in financial difficulties and unable to repay the loan. It would not be treated as a new loan.
What about security?
The loan must be secured as a first charge against real assets (eg property) that have a value at least equal to the outstanding loan.
What interest must apply?
The rate must be a minimum of 1% above base lending rate of the following 6 banks, Bank of Scotland, Barclays Bank, HSBC, Lloyds TSB. National Westminster and Royal Bank of Scotland. The rate is rounded up to the next 0.25%.
What about repayment terms?
The monies lent must be repaid by equal instalments of capital and interest each year.
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Tel: 0151 328 1777 Fax: 0151 328 0707
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