Can this be done with a SIPP
Discussion
A friend has significant amount in a SIPP. He company needs a cash injection and some plant and equipment as they have just won a big contract.
As an investment for his SIPP, can he lend money to his company and charge interest for the loan via a legal contract with fixed loan period and interest etc? Can he buy a couple of diggers and other equipment and lease it back to his company at market lease fee?
I know he can buy commercial building so in theory he can by a lockup and rent it back to his company. But can his SIPP act like a finance company and lend money?
As an investment for his SIPP, can he lend money to his company and charge interest for the loan via a legal contract with fixed loan period and interest etc? Can he buy a couple of diggers and other equipment and lease it back to his company at market lease fee?
I know he can buy commercial building so in theory he can by a lockup and rent it back to his company. But can his SIPP act like a finance company and lend money?
A company director will sometimes be better advised using the Small Self-administered Scheme (SSAS) which can loan up to 50% of its assets to a company, subject to security and reasonable repayment terms applying. Use a good one, some are expensive and make sure the company you choose is happy with the intention at outset.
Yes you're Sipp can set up a loan to the company without issue so long as the rates are market rates. I believe the limit is 50% of the Sipp value.
Or the Sipp can buy the commercial property and rent it back to him. You only need half the money to do this so long as you haven't used up your last 3 years AIA in full. Any rent is a return on investment so does not count towards the AIA
Or the Sipp can buy the commercial property and rent it back to him. You only need half the money to do this so long as you haven't used up your last 3 years AIA in full. Any rent is a return on investment so does not count towards the AIA
NO!
A SIPP cannot grant a loan to Ltd which he owns. It would be considered an unauthorised member payment by HMRC and tax charges totalling 55% of the loan levied.
As he has a Ltd he needs to establish a SSAS (Small Self Administered Scheme) instead, transfer his SIPP assets to the SSAS and then he can effect a loan of up to 50% of the SSAS assets to the Ltd.
I know it seems silly that a SSAS can but a SIPP can't, but that's the law!
The loan would be over a maximum of 5 years, would need to charge a minimum of 1% over base rate interest and the SSAS must effect 1st charge security for the loan (eg a Debenture).
A SIPP cannot grant a loan to Ltd which he owns. It would be considered an unauthorised member payment by HMRC and tax charges totalling 55% of the loan levied.
As he has a Ltd he needs to establish a SSAS (Small Self Administered Scheme) instead, transfer his SIPP assets to the SSAS and then he can effect a loan of up to 50% of the SSAS assets to the Ltd.
I know it seems silly that a SSAS can but a SIPP can't, but that's the law!
The loan would be over a maximum of 5 years, would need to charge a minimum of 1% over base rate interest and the SSAS must effect 1st charge security for the loan (eg a Debenture).
It's worth pointing out too that the phrase 'connected party' (which dictates the terms under which a SSIP can be used to make a loan) can broadly be defined as a "spouse or relative, a spouse of a relative, a trustee who is connected with a settlor, a fellow partner in a partnership, or a spouse or relative of a partner or a company which is controlled by connected parties, one company controlling another, or 2 companies controlled by the same person".
There are lots of other things to bear in mind. Most broadly, and most immediately important to remember, is that if a SSAS is investing in this single company, then your mate is exposed to all sorts of new risks. If his company goes pop, so too does his retirement to the invested extent.
There are lots of other things to bear in mind. Most broadly, and most immediately important to remember, is that if a SSAS is investing in this single company, then your mate is exposed to all sorts of new risks. If his company goes pop, so too does his retirement to the invested extent.
^^^ One rule of thumb is "Don't invest your occupation and your pension in the same thing"! If the job goes wrong it'll take your pension with it.
Having said that, I realise it's the reality for many self-employed people who will be ploughing all available cash back into their business. This went wrong for a mate of mine, taking his business, house, pension and marriage with it. Avoid if possible...
Having said that, I realise it's the reality for many self-employed people who will be ploughing all available cash back into their business. This went wrong for a mate of mine, taking his business, house, pension and marriage with it. Avoid if possible...
onny said:
Thanks guys, that is very useful information.
Sorry for my stupidity but what is the difference between a SIPP and SSAS from a pension point of view. if My friend transfer his SIPP into a SSAS he sets up, is that any tax implications or financial penalties?
A SIPP is a personal pension scheme established by a FCA approved product provider which the member joins.Sorry for my stupidity but what is the difference between a SIPP and SSAS from a pension point of view. if My friend transfer his SIPP into a SSAS he sets up, is that any tax implications or financial penalties?
A SSAS is an occupational pension scheme established by a Ltd company which the employee joins.
There are no tax implications on transfer, but some investments may have a penalty to encash and transfer to the SSAS if they can't be transferred in-specie.
PurpleMoonlight said:
NO!
A SIPP cannot grant a loan to Ltd which he owns. It would be considered an unauthorised member payment by HMRC and tax charges totalling 55% of the loan levied.
I am awaiting a return call from Suffolk Life MasterSipp as we speak. I have it in writing from my IFA that we can so I will let you know what Suffolk Life say. Damn Friday afternoons A SIPP cannot grant a loan to Ltd which he owns. It would be considered an unauthorised member payment by HMRC and tax charges totalling 55% of the loan levied.
Jockman said:
I am awaiting a return call from Suffolk Life MasterSipp as we speak. I have it in writing from my IFA that we can so I will let you know what Suffolk Life say. Damn Friday afternoons
Why wait, this is HMRC's stance:http://www.hmrc.gov.uk/MANUALS/RPSMMANUAL/rpsm0710...
PurpleMoonlight said:
Jockman said:
I am awaiting a return call from Suffolk Life MasterSipp as we speak. I have it in writing from my IFA that we can so I will let you know what Suffolk Life say. Damn Friday afternoons
Why wait, this is HMRC's stance:http://www.hmrc.gov.uk/MANUALS/RPSMMANUAL/rpsm0710...
Phew....still don't fully understand everything but this is what Suffolk Life say....
The net value of the SIPP determines the size of the Loan taken THROUGH the SIPP, up to a max of 50%. No money ever leaves the SIPP. If the SIPP value is say £200k then a loan of £100k is possible but it is set up via a 3rd party eg HSBC who lend the money to SLA Property Co Ltd. This money is then used to either improve the current properties in the SIPP or purchase a new commercial property for the SIPP. Either way, it can only be used for the benefit of the SIPP. Any new rent from the new property thus falls within the SIPP.
To me, this just sounds like rules on how much a SIPP can borrow, rather than any lending facility which they agree is not possible
The net value of the SIPP determines the size of the Loan taken THROUGH the SIPP, up to a max of 50%. No money ever leaves the SIPP. If the SIPP value is say £200k then a loan of £100k is possible but it is set up via a 3rd party eg HSBC who lend the money to SLA Property Co Ltd. This money is then used to either improve the current properties in the SIPP or purchase a new commercial property for the SIPP. Either way, it can only be used for the benefit of the SIPP. Any new rent from the new property thus falls within the SIPP.
To me, this just sounds like rules on how much a SIPP can borrow, rather than any lending facility which they agree is not possible
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