Change to Loan Security

22-02-2010

HM Revenue & Customs have released Pensions Newsletter 39, which includes updated guidance on security for loans from pension schemes.

As you will be aware, when a SSAS makes a loan to a Principal or Associated Employer the loan must be secured by a first charge over an asset. HMRC have now clarified their stance on the use of taxable property (such as residential property or company vehicles) as security. The updated guidance states that fees or costs involved in putting the charge in place will result in an unauthorised payment and attract tax charges, which are likely to be relatively small. However, in the event of a default by the employer, the scheme would be obliged to call in the security. This would create an unauthorised payment based on the market value of the asset, and would result in substantial tax charges. The same principle applies to security for loans from a SIPP or SSAS to a third party.

As a result of this updated guidance, we will only be able to allow loans from a SIPP or a SSAS to be secured over an asset that is not classed as taxable property. Although we are happy to consider all proposals, in practice this restricts the assets that can be used as security to little other than unencumbered commercial property.