Borrow money for capital investment from pension schemes
How small self-administered pension schemes allow a business to borrow money with certain restrictions.
Employers are not generally allowed to borrow from a business' pension scheme. One exception is with small self-administered schemes (SSAS).
SSAS are occupational pension schemes designed for shareholding directors of small limited companies. The schemes are permitted to lend money to the company for any purpose including capital investment, ie for capital assets (tangible property that cannot easily be converted into cash and will be held long-term) or fixed assets.
However, there are restrictions on loans that can be made from the SSAS. Read Money Helper .
These loans are tax efficient for the pension scheme as the interest income earned is not subject to tax. The company itself can claim tax relief for the interest payable. Its owners are usually the SSAS members so they benefit from its tax-efficient investment - effectively they are borrowing money from and paying interest to themselves.
There are five key tests that a loan must satisfy to qualify as an authorised employer loan, which are:
- security
- interest rates
- term of loan
- maximum amount of loan
- repayment terms
The scheme would have to be registered with HM Revenue & Customs (HMRC) and a formal loan agreement should be drawn up.
Read HM Revenue & Customs .