A Small Self-Administered Scheme (SSAS) has an advantage over Self-Invested Personal Pensions (SIPP) and other private pension arrangements in that it can lend money to connected parties which includes the owner’s business. The technical term for this is an authorised employer loan but is often known as a “loanback”. While there are other pension led funding mechanisms to provide finance to business, a loanback is the simplest and best understood.
Can a SSAS Lend Money to My Business? How SSAS Expert Works
Can a SSAS Lend Money to My Business? How SSAS Expert Works
There are 5 requirements imposed by section 179 Finance Act 2004 that must be satisfied in making a loanback to avoid a tax penalty:
- Maximum loan – the amount of the loan must not exceed 50% of the net asset value of the SSAS fund at the time the loan is made. This includes outstanding amounts of any existing loans to sponsoring employers;
- Repayments – loans must be repaid in equal instalments of capital and interest over the term of the loan;
- Loan term – the maximum term of the loan is 5 years from the date of advance;
- Interest rates – although higher rates may be charged, the minimum interest rates a SSAS may charge is calculated at 1% above the average of the base lending rates of six leading high street banks; and
- Security – the loan must be secured by a first charge on an asset of at least the value to the loan plus all interest. The asset charged does not necessarily have to be owned by the borrower.
The interest and capital repayments of the loan are paid back to the SSAS for the benefit of the members.
Loanbacks can provide cheap, flexible finance to businesses without the need to deal with third-party lenders.