Loan Back

Technically this is called an Authorised Employer loan, meaning that HMRC specifically allow this loan to be used by your business to boost what the Employer does, whether that is build products or provide a professional service. Because the loan is made from the pension back to the company a shorthand name has evolved… ‘Loan Back’

The ‘product’ might be anything from residential property that is sold or other traditional manufactured items. A professional service might be any knowledge based commercial transaction.

But it is not a ‘Free-for-all’. HMRC will allow your pension to lend to your company if the loan fulfills FIVE key criteria:

• Maximum loan amount is 50% of the net value of the fund (The value of all assets in the fund less any money the SSAS has borrowed).
• A maximum loan term of 5 years
• Loan repayments must be in equal amounts of capital and interest in each year of the loan term, its not ‘Interest only’!
• The interest rate must be at least 1% above the average high street bank base rate. The loan interest, which is allowable as a business expense for tax purposes, is paid back into the scheme
• Loans must be secured by way of a first ranking legal charge on security worth at least the Loan Amount (at the beginning) plus all of the interest that will be charged on the loan over its lifetime, no 100% Loan to Value loans.

If any of the key criteria are breached an ‘unauthorised payment’ will have occurred and very significant penalties will be charged immediately.