Loans to your business (SSAS only)
A SSAS is permitted to make a loan to the employer (providing it is a limited company) for any purpose. However, the following requirements apply:
- The loan must be secured throughout the term with a first legal charge on an asset owned by the principal employer, or another person, which is of at least equal value to the face value of the loan including interest.
- The maximum amount of the loan is 50% of the net asset value of the scheme
- The interest rate charged must be a commercial rate and be at least 1% above the average of the base lending rates of six leading high street banks.
- The term of the loan must not be longer than 5 years. The total amount owing (including interest) must be repaid by the loan repayment date (subject to rolling over below).
- The loan must be set up on a repayment basis with equal installments of capital and interest being paid regularly (and at least once a year).
Rolling over a loan to your business
It may be possible for a loan to be extended and the loan repayment date rolled over where an employer is having genuine difficulties making repayments and there is an amount of capital or interest outstanding at the end of the term. However, the following conditions apply:
- The term of the rollover must not be longer than 5 years starting from the standard repayment date.
- A loan can only be rolled over once.
- The rollover loan will not be treated as a new loan and therefore any existing security may continue, even if the security less than the face value of the loan.
- Any increase to the original loan will be treated as a new loan.
- The 50% limit will only be re-tested in the event of a new loan being taken out.
Loans to members of the pension scheme
SSASs and SIPPs are not permitted to lend money to a member of the scheme or to anyone connected to a member. This means that, if the employer is not a limited company, but is a partnership or sole trader, then the SSAS would not be permitted to lend money to the business.
Loans to unconnected parties
SSASs are also permitted to lend money to an unconnected party. In this case, none of the regulatory restrictions listed above apply. However, the trustees of the scheme still have a duty to act prudently and in the best interests of the scheme, which would mean that the loan must be secured and at a fair market interest rate.