SSAS loans.

A SSAS can make loans to unconnected third parties agreed between the Trustees and the borrower of up to 100% of the new asset value of the scheme. Your client will need to negotiate 'commercial terms' for the loan.

Loans to members or those connected to members are not permitted.

Loans to a sponsoring employer can be made only if the following conditions are met:

Maximum amount

Restricted to 50% of the net asset value of the scheme at the date the loan is taken, less any existing loans.

Repayments

Loans must be repaid in equal instalments of capital and interest throughout the term. This can be made either monthly or quarterly.

Loan term

The maximum term is 5 years from the date the loan was advanced. The total amount owing, including interest, must be repaid by the loan repayment date.

Interest rates

The minimum interest rate a scheme may charge is calculated at 1% above the average of the base lending rates of 6 leading high street banks. Higher rates may be charged but only if the terms applied mirror a commercial loan offer and can be evidenced. We will require the interest rate to be fixed at outset.

Security

The loan must be secured by a first charge on a suitable asset of at least the equivalent value to the loan plus interest. The asset charged need not be owned by the borrower.

This is the most difficult of all of the conditions to achieve.

Although HMRC will permit any asset, certain assets will create tax problems and liabilities in the event of default. For example, plant and machinery often realise significantly less than book value in the event of a company failing. In addition, the act of seizing any ‘taxable moveable property’ by the Trustees on default immediately creates a tax charge within the scheme.

Any security value which falls short of the secured debt is treated as an 'unauthorised employer payment', which could revert to the Trustees. For this reason, we only recommend security over commercial property - or in certain cases residential property - where a charge over proceeds of sale, rather than the asset itself, prevents a taxable property charge.

For more information please contact us.