How much a Small Self-Administered Scheme (SSAS) can lend to a business depends upon the relationship the SSAS has to the borrower. The rules are different depending upon whether the borrower is deemed to be ‘connected’. The legislation around what constitutes a connected party is not as straightforward as is often assumed and requires traversing several pieces of legislation to determine the true position.
How Much Can a SSAS Lend to My Business?
How Much Can a SSAS Lend to My Business?
Where a SSAS is connected to the borrower, the maximum that it can lend is 50% of the net asset value and is subject to several restrictions:
- 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.
Where a SSAS is not connected to the borrower, there are no restrictions on the amount of the SSAS that can be lent or the terms, and therefore it is possible for up to 100% of the fund value to be lent. However, HMRC do offer the following commentary in their Pensions Tax Manual:
There is no objection to a registered pension scheme making loans to third parties i.e. persons not connected to members or sponsoring employers. Such loans are normally on an arm’s length basis at a market rate.
It is important to note that a SSAS can enter into funding transactions with a business, that don’t take the form of a loan, that can utilise 100% of the fund for business finance purposes. For example, a SSAS could purchase an asset (e.g. property) from the business, the economic effect of which being that the SSAS takes ownership of the asset and the business receives the proceeds.