A SSAS can make a loan to its sponsoring employer or any party unconnected to the member (e.g. if it’s your firm’s SSAS, the firm or other external parties can receive the loan funds, but you personally cannot)

Some key facts for you to consider:

  • Only a SSAS (Small Self-Administered Scheme) can make a loan to a sponsoring employer. A SIPP cannot do this.
  • 50% of the net value of the fund can be loaned.
  • Any loan to a sponsoring employer must be on a commercial basis.

This style of pension strategy must be considered carefully before being committed to; however there can be some clear potential advantages;

  • The member’s SSAS receives interest on the loan to their business.
  • Loan interest repayments are a deductible business expense.
  • Loan interest received by the SSAS is not subject to tax.
  • The SSAS’s exposure is secured through a first charge on an unencumbered asset.

The rules surrounding Loan Backs are stipulated by HMRC;

5 tests must be passed, as follows:

  1. The loan must be secured as a first charge on an asset of equal value to the capital and interest payable over the term.
  2. The loan must have a commercial interest rate (as prescribed by HMRC, typically at least 1% over bank base rates).
  3. The repayment period must not be longer than 5 years.
  4. The amount loaned must not be more than 50% of the net value of the scheme’s funds.
  5. Repayment of the loan must be in equal annual instalments of both capital and interest.

Using your SSAS pension to lend money back to your limited company is a complex area of pension planning that must be considered in detail.

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