SSAS Loan Backs
I used to refer to this as becoming your own banker!
Over the past few years Self Invested Personal Pensions or SIPPs have received a lot of attention. However their brother the Small Self Administered Scheme or SSAS has been left in the dark. Well SSASs still have certain advantages over SIPPs and Loan Backs are one of them.
This little used piece of legislation allows a SSAS to lend up to 50% of its value to the sponsoring employer (Limited Company, LLP or Partnership) as long as certain criteria are met. In general, the criteria is:
1. Interest rate has to be charged at a commercial rate (anything over base rate + 1% is acceptable).
2. A charge over an asset has to be given to cover the value of the loan. Examples of suitable items are property, vehicles or machinery. I've even heard of a Rolex watch being used!
3. The maximum term is 5 years. However if good reason is given the loan can be rolled over for another 5 year term.
Existing pension funds, including SIPPs can be transferred into a SSAS and loans taken immediately.
There are some other points to bear in mind. The cost to set up a new SSAS is typically in the region of £700 + VAT. There is also an annual administration fee which is again typically around £700 + VAT and scheme accounts needs to be drawn up annually which typically costs another £600 + VAT.
However a SSAS does offer the ultimate in terms of flexibility. The sponsoring employer even holds the cheque book for the SSAS and is be the sole signatory.
In the current climate the flexibility a SSAS provides could be the answer if your local Bank Manager has become a little less helpful over recent months!
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