Can I borrow funds from my pension?
With the rise in popularity of Small Self- Administered Scheme (SSAS) pensions comes greater flexibility and opportunities including the ability for company directors to lend their own limited companies money from their scheme to grow their business.
Currently, both Self Invested Personal Pension (SIPP) and SSAS pensions can use their funds to invest in land and commercial property. One feature which is unique to SSAS pension holders is a pension loan back facility, which can be utilised to invest in such things as stock purchase, property renovation costs and in some circumstances residential property.
As an example, a company director holding a SSAS pension with a fund value of £200,000 could lend his company £100,000 for whatever purpose required providing that they adhere to the HMRC rules.
HMRC Rules
There are HMRC rules which must be adhered to when considering a pension loan back, these are available in full using this link – https://www.gov.uk/guidance/pension-trustees-investments-and-tax
A synopsis of the loan back rules are as follows:
1. The loan can’t be for more than five years
2. Interest charged on the loan must be at least 1% above the average base lending rate of the leading high street banks
3. The loan must be secured as a first charge against assets of at least equal value to the loan plus the loan interest.
4.The loan can’t be more than 50% of the net value of the scheme assets
5.The terms of the loan must require it to be repaid in equal annual instalments
Your SIPP or SSAS pension can as mentioned be used to buy land or commercial properties. It is important to note that the definitions of commercial property can be a grey area and before entering into any transaction to purchase a “commercial” property you should seek guidance from the SIPP or SSAS trustees.
What is considered as commercial property?
The types of investments that are commonly considered as commercial property include offices, industrial units, shops and retail units, hotels and pubs, although this is not an exhaustive list it does provide an idea of the types of property available that you could purchase using 100% of your pension fund. It is also possible to leverage up to 50% of your pension fund in this scenario. As an example in this case, someone with a pension fund value of £200,000 could effectively leverage and purchase a commercial property valued at £300,000.
Summary
In addition to the option to invest in traditional pension arena staples such as stocks and shares, bonds and commodities, both SIPP and SSAS pension schemes offer their members the opportunity to purchase commercial property, including their own business premises and in the case of a SSAS pension the facility to lend money to a limited company to help stimulate growth in both the business and the pension scheme in a tax efficient manner.
If you’d like to find out more about how property crowdfunding could help you grow your pension Click Here to arrange to speak with one of our experienced consultants.
