SASS and loanbacks etc
Walk around any industrial estate today and it is a good bet that you’ll see lots of family owned businesses who own their units. This is typically arranged via a Small Self Administered Scheme pension to maximise the tax benefit. These schemes are set up by the directors and often the resulting cash accumulated from the rent can be loaned back to the employer – in a sort of top hat arrangement where the money and benefits go in and out of the scheme.
Here with an article with thanks to Barnett Waddingham on the subject. https://www.barnett-waddingham.co.uk
Loans can be made to sponsoring employers of a SSAS, but not to SSAS members or anyone connected to them. Where the SSAS is established by a partnership, loans cannot be made back to that business. Loans can be made to unconnected individuals and companies with the terms agreed between the trustees and borrower with no HM Revenue & Customs (HMRC) interference. Where lending to individuals, this can only be done if the lending does not require a Consumer Credit Licence.
To qualify as an authorised employer loan, certain criteria must be met, broadly:
- Term: no more than 5 years.
- Security: secured by a first charge.
- Interest rate: commercial rate of at least minimum of 1% above base rate.
- Repayments: at least equal annual instalments of capital and interest.
- Amount: no more than 50% of the net asset value of the SSAS in total.
The term can be extended for a further five years if, at repayment, the borrower is in genuine financial difficulties. The security must cover all outstanding capital and interest throughout the term of the loan and there can be no equal or higher ranking charges. The interest rate must be commercial and at least 1% above the average base lending rate of six high street banks specified by HMRC.
Information needed before an authorised employer loan is advanced
- Confirmation of the borrower.
- Details and valuation of the security, the valuation should carried out by an appropriately qualified valuer and be dated within six months of the loan being drawn down.
- The trustees and the borrower should agree the terms of the loan (ensuring that they meet the general conditions outlined above).
- A solicitor must be appointed in order to put the security in place: Barnett Waddingham does not insist on any specific solicitor being used and therefore the trustees are free to find the most suitable solicitor for their needs.
- A valuation of the assets of the SSAS in order to confirm that total loans will be no more than 50% of the net asset value of the SSAS.
Tips for an efficient investment
- Don’t leave it to the last minute before deciding to provide a loan from your SSAS to your company. It often takes a bit of time to set up the loan - we need to check the basis of the loan meets HMRC requirements, cash has to be available in the SSAS and suitable security has to be identified and valued.
- Obtain your solicitor’s confirmation that the security is in place and enforceable before the loan is drawn down.
- Unencumbered commercial property is the most efficient form of security. Whilst other assets such as residential property or plant/machinery can be used, these could incur tax charges (and will increase the cost of administration) if the loan fails.
- As the loan will be repaid in equal instalments, your company should set up a standing order to make all repayments on or before the due dates. This will reduce the cost of administration and reduces the possibility of a tax penalty on late payment.
- Tackle late payments immediately
Wiht thanks to Barnett Waddingham Actuaries in Cheltenham for an excellent article.