Can My Business Borrow From My Pension?

Can My Business Borrow From My Pension?Written on September 14, 2016 by Kirk Rice LLP

Financial Services Questions

The Question:

Over the years I have invested a fair bit of money into my SIPP Pension via my business. The business could now do with some of that money back. Am I correct in thinking that my Pension can lend my business money?

Kirk Rice LLP answers:

A Pension can lend money to a Sponsoring Employer but a SIPP (Self Invested Personal Pension) is a type of Personal Pension and as such there is NO Sponsoring Employer. It therefore cannot lend money to your business. Please note, that whilst your company can contribute to the SIPP it does not mean that the employer is a Sponsoring Employer under pension rules. These are only applicable to company pension schemes. A SSAS (Small Self Administered Scheme) is a type of company pension, it does have a Sponsoring Employer and it CAN lend money to an employer.

There are, however strict conditions that must be met for a loan to be allowable. The first is that the pension can lend no more than 50% of its net value. A pension valued at £100,000 could therefore lend no more than £50,000. The value must allow for any existing loans, including mortgages to buy commercial property. The second and probably the most difficult criteria to satisfy is that the loan must be secured on an asset of the borrower, in this case the company, with a value equal to or greater than the loan amount. It must also be a non-depreciating asset. The term of the loan can be no longer than 5 years and annual payments of interest and capital must be equal.

Finally, a commercial rate of interest must be charged which is defined as being at least 1% above the Average Base Rate of the 6 leading High Street Banks. If you want to use your Pension to support your business, you would need to transfer your SIPP to a SSAS. Transferring the SIPP may incur a penalty and will almost certainly incur costs as indeed will starting a new SSAS. Borrowing money from your Pension should be seen as a choice of last resort and I would suggest that you explore the alternatives fully. This could include a Bank Loan, extending the Business Overdraft or perhaps your personal money to help the business.

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Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. Please note this information is correct on the date published and details may have changed since.

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