The tightening of HMRC’s check and register process, along with the occupational and personal pension schemes (conditions for transfers) regulations 2021, have now shut the door on scammers' route to this market by making the registration of and transfer of pension assets to a SSAS appropriate only for those genuinely requiring the vehicle.
The market for SSASs has in fact increased following the regulatory backlash on Sipps, where some Sipp providers have been forced to reconsider and, in some instances, restrict their propositions.
SSASs are, after all, individually registered pension schemes governed by their own trustees. They can, with advice from external professionals, decide exactly what investments they choose to hold and in what proportions, whereas a member of a Sipp must abide by the specific rules of the Sipp provider, whose product it is.
This flexibility does mean that in some instances SSASs offer a clear advantage over a Sipp or group of Sipps.
Loan-back facility
Another clear advantage is that a SSAS can lend funds back to its sponsoring or connected employer, where a Sipp offers no such facility.
A loan-back is attractive for several reasons, primarily because it allows the interest to be paid as a tax-deductible expense of the business directly into the SSAS, being another pocket of the directors/members wealth, rather than to an unconnected third-party lender.
It is often significantly quicker to agree a loan with the SSAS trustees than to run the gauntlet of a high street bank’s lending policy.
The loan-back is, as you would expect, conditional on five key criteria being met, without which the payment to the employer would incur tax charges as an unauthorised employer payment. These criteria are:
- The loan must not exceed 50 per cent of the net value of the SSAS assets.
- The term of the loan must not exceed five years.
- The interest rate (currently) must be a minimum of 1 per cent above the bank base rate and commercial.
- The loan should be repaid with equal capital and interest repayments over its term.
- The loan should be secured with a first charge over a suitable asset for the term of the loan.
Any loan must also be appropriately documented and the arm’s length nature of the terms of the loan must be adhered to, as failure to do so could also lead to unauthorised tax charges.
There are also pitfalls that might be experienced, particularly regarding the security offered for loans. Firstly, the charge must be registered, as failure to do so could make it unenforceable, which would invalidate one criterion.
Secondly, on default of the loan, it would be expected that the trustees should call in their security, meaning that they would at that time hold a financial interest in the security offered.
A commercial property as an example would not create any issues as it could legitimately be held in a SSAS in any event, but other assets, such as residential property or plant and machinery, could also trigger tax charges as holding those assets directly incurs tax charges both within and outside of the scheme.
