Corporate Property Purchase & Loans Within Small Self Administered Schemes

A key attraction of a small self administered scheme is the ability to purchase and hold as investments, commercial property. This can include land, whether developed land, farmland or forestry in or outside of the UK, as well as buildings including offices, factories, shops, warehouses and investment units, such as hotel rooms.

HM Revenue & Customs (HMRC) will not permit investment in residential property unless the residential element is occupied as a condition of employment, such as a caretaker's flat. We can advise you on the acceptability of any prospective purchase.

Purchases and sales can be made with both connected and unconnected third parties. The former transactions, as well as any lease to a connected party, must be evidenced as taking place at a commercial rate and evidenced by a professional independent valuation.

A SSAS may borrow funds to help finance a property purchase. The maximum borrowing is limited to 50% of the net asset value of the scheme at the date of the purchase.

Loans
A feature of a SSAS is the ability for its trustees to invest by way of granting loans to connected or unconnected parties. New regulations introduced by HMRC in April 2006 now govern new loans and these are summarised below.

For loans to sponsoring employers, five key criteria must be addressed.

Security
A first charge on an asset must be held at least equal in value to the face value of the loan including any loan interest.

Interest Rates
The minimum interest rate the scheme may charge is 1% above the average base lending rates of the 6 leading high street banks. Interest must be paid when due.

Term
The loan must not be granted for a term exceeding 5 years.

Maximum Amount
The permitted maximum loan to a sponsoring employer is 50% of the net market value of the scheme at the date the loan is made.

Repayment Terms
Any loan must be repaid in equal instalments of the capital and interest at least on an annual basis.

A loan to a sponsoring employer must be for a commercially acceptable purpose, and the terms of the loan must be evidenced in writing. All members must approve all aspects of and prudence of any loan before it can be made.

Failure to maintain regular capital or interest payments will result in an unauthorised payment tax charge, potentially on both the defaulting party and the scheme.

For loans to unconnected parties these criteria do not apply, but the Trustees must always satisfy themselves with regard to the suitability or any such loans under their fiduciary responsibilities to the scheme members.

Loans to scheme members, or persons connected with members or the sponsoring employer are not permitted, or would be subject to scheme and member tax penalties.