SSAS schemes can make loans to unconnected unquoted UK limited companies but loans to members (or those connected to members) are not permitted other than a loan by a SSAS to a sponsoring employer. 

SSAS loans to unconnected UK limited companies.

A SSAS can make loans to unconnected UK limited trading companies but certain criteria must be met which is outlined below.

  • Secured loans to unconnected UK limited companies​: Are allowed up to a maximum of 95% of the net asset value of the SSAS, provided it is secured by a first charge on property with a loan to value of no more than 70%.
  • Unsecured loans to unconnected UK limited companies: We will allow up to 25% of the net market value of the SSAS at the point of advance/purchase, with a maximum term of two years. The total amount held in unsecured loans and shares in unquoted UK limited trading companies, must not exceed 75% of the net market value of the SSAS fund with the remaining 25% of assets to be held in readily-realisable investments, i.e. could be traded/sold for a reasonable price within 30 days.  If the investments are in the same company, the maximum is restricted to 50%.
  • A minimum of fund size of £60,000 is required.

For both secured and unsecured loans, a balance of at least £5,000 in the SSAS default bank account must be maintained after the loan has been made.

Loans to individuals (including members), partnerships or trusts, or companies connected with members (including companies that are associated with a sponsoring employer but do not participate in the SSAS) are not permitted other than a loan to a sponsoring employer.

Please complete and return the relevant questionnaire for our consideration if you wish to consider a:

SSAS loans to a sponsoring employer.

Since 6 April 2006, a new loan to a sponsoring employer must meet five key tests to qualify as an ‘authorised employer loan’. These are set out in Section 179 of Finance Act 2004. Failure to satisfy any of the conditions for a loan to a sponsoring employer will be an unauthorised employer payment and give rise to tax penalties on the sponsoring employer and the SSAS.

Condition Requirements that must be met
Maximum loan The amount of the loan, together with outstanding amounts of any existing loans to sponsoring employers, must not exceed 50% of the net market value of the SSAS fund at the time the loan is made.
Repayments Loans must be repaid in equal instalments, either monthly or quarterly, of capital and interest for each complete year of the loan. An incomplete year at the end of the term is treated as the final complete year.
Loan term The maximum term is five 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 SSAS may charge is calculated at 1% above the average of the base lending rates of six 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 to be used as security, 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 such ‘tangible moveable property’ by the Trustees on default by the sponsoring employer immediately gives rise to tax charges on the members and the SSAS. 

Dentons' position is that security must take the form of UK land or property and we will review each proposal individually.

Failure to satisfy any of the first four tests could give rise to an ‘unauthorised payment’ and associated tax charges on both the sponsoring employer and the scheme.

The security requirement can be the most difficult to achieve and the finer points are not always fully appreciated. For example:

  • If the asset(s) charged include ‘taxable property’ (i.e. residential property and/or tangible moveable property such as plant and machinery, vehicles, works of art, antiques etc.), there is a danger that if the borrower defaults, the scheme could then have an interest in those assets, which would be an unauthorised payment and could give rise to tax charges on both the scheme members (in their personal capacity) and the scheme.

The total of these charges could be at least 55% of the amount of the unauthorised payment. It is imperative therefore, that the solicitor drafting the legal charge ensures that in any circumstances, the scheme only ever has an interest in the proceeds of sale of such assets and not the asset itself. In addition, the borrower should pay for all the expenses relating to the loan and legal charge. 

  • If the value of the asset(s) falls below the amount of the outstanding loan and interest due at any time during the term, it will only be a problem if the reduction in the value of the asset was due to any step taken by the scheme, the sponsoring employer or a person connected with the sponsoring employer.

If that does happen, the unsecured part of the loan would be an unauthorised  payment and could give rise to tax charges on both the sponsoring employer and the scheme.

It should also be noted that where the sponsoring employer is to use an authorised employer loan to acquire taxable property, it would only escape the taxable property tax charges provided the interest the sponsoring employer acquires in the taxable property is for the purposes of its trade or its administration or management, and after the acquisition, the taxable property is not occupied or used by a scheme member or a person connected with a scheme member. 

Finally, before agreeing to an authorised employer loan, scheme trustees should ensure that the proposed loan is in the interests of the scheme and its members.

Please note: The loan can only be used to acquire taxable property provided that the taxable property is to be used for the purposes of the sponsoring employer's trade, profession or vocation or for the purposes of the sponsoring employer's administration or management, and is not occupied or used by a member of the SSAS or a connected person.

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