Adviser > Technical Central > Pre simplification > Occupational > Small Self-Administered Scheme - Trustee's Borrowings
Small Self-Administered Scheme - Trustee's Borrowings
The content of this page is based on our understanding of how pensions worked before A-Day, the 6 April 2006, and is provided for reference only.
It is possible for small self-administered scheme (SSAS) Trustees to borrow money from a lender e.g. a bank, to purchase, or help purchase scheme assets. This may enable Trustees to buy much larger assets than they would have been able to using only existing scheme funds. The Trustee's borrowings can be secured or unsecured, they must however be on commercial terms.
The maximum amount that Her Majesty's Revenue and Customs (HMRC) will allow the Trustees to borrow is a sum equal to the total of:
- 3 times the ordinary annual contribution (see notes below) paid by the employer, plus
- 3 times the annual amount of basic or contractual contributions paid by the scheme members (excluding AVCs) in the tax year ending immediately before the Trustee's borrowings, plus
- 45% of the market value of the assets of the scheme (see notes below.)
Notes
| Ordinary annual contribution means the smaller of: |
|
| 45% of the market value of the assets of the scheme must exclude: |
|
The limit to the maximum amount of Trustee’s borrowings applies at the date the borrowings take place. The maximum amount will not be re-tested at a later date, even if there is a change of circumstances.
Any money borrowed must be used to benefit the scheme. If the Trustees decide to use this money to lend to the employer, or an associated employer, then a higher rate of interest must be charged than the SSAS is paying to borrow the money.
Existing loans
If the scheme Trustees have previously borrowed money and some of this is still outstanding, the amount outstanding at the time of the new loan must be deducted from the market value of the scheme assets before the 45% is calculated.
Example
Date of Trustee's borrowings – 1 July 2004
Scheme accounting date – 1 June
The amount that the actuary has advised that would have to be paid in order to secure the benefits provided under the scheme - £75,000 p.a.
Amount of outstanding borrowings - £25,000
Contributions to the scheme in the last 3 years
| CONTRIBUTION PERIOD | CONTRIBUTION | TOTAL |
|---|---|---|
| 1 June 2001 – 31 May 2002 | annual - £50,000 | £65,000 |
| 1 June 2002 – 31 May 2003 | annual - £65,000 | £75,000 |
| 1 June 2003 – 31 May 2004 | annual - £70,000 | £70,000 |
| Average is £70,000 | ||
Value of scheme as at 1 July 2004
| ASSETS | VALUE |
|---|---|
| Insurance policies | £50,000 |
| Unit trusts | £20,000 |
| Commercial property | £120,000 |
| Quoted shares | £50,000 |
| Trustee bank account | £20,000 |
| Total assets | £260,000 |
Maximum Trustee borrowings:
= (3 x 70,000) + (45% x [£260,000 - £25,000])
= £210,000 + £105,750
= £315,750
Scheme been in existence for less than 3 years
If a scheme has been in force for less than 3 years the total amount of contributions paid since the scheme commenced until the time of the Trustee's borrowings is divided by the number of years within that period, with a part year being counted as one year e.g.
Commencement date - 1 January 2003
Accounting date - 1 March
Date of Trustee's borrowings - 1 April 2004
Period 1 = 1 January 2003 to 28 February 2003
Period 2 = 1 March 2003 to 29 February 2004
Period 3 = 1 March 2004 to 1 April 2004
Therefore you would divide by 3.
Example
Commencement date – 1 January 2003
Date of Trustee's borrowings – 1 April 2004
Scheme accounting date – 1 March
The amount that the actuary has advised that would have to be paid in order to secure the benefits provided under the scheme - £25,000 p.a.
Contributions to the scheme in the last 3 years
| CONTRIBUTION PERIOD | CONTRIBUTION | TOTAL |
|---|---|---|
| 1 January 2003 – 28 February 2003 | annual - £8,000 | £13,000 |
| 1 March 2003 – 29 February 2004 | annual - £10,000 | £15,000 |
| 1 March 2004 – 1April 2004 | annual - £2,000 | £2,000 |
| Average is £10,000 | ||
Value of scheme
| ASSETS | VALUE |
|---|---|
| Insurance policies | £15,000 |
| Unit trusts | £5,000 |
| Trustee bank account | £6,000 |
| Unquoted shares | £8,000 |
| Total assets | £34,000 |
Maximum Trustee borrowings:
= (3 x 10,000) + (45% x £34,000)
= £30,000 + £15,300
= £45,300
Other lenders
It is possible for the scheme Trustees to borrow money from someone other than a bank or building society e.g. the principal employer. If money is borrowed from a connected party then HMRC must be sent a copy of the loan agreement so that they can check that the loan is on commercial terms.
Reporting requirements
In most cases HMRC must be advised of any Trustee borrowings using HMRC form PS7015. However, the borrowings do not need to be reported:
- where the money is borrowed for 6 months or less, and
- the aggregate amount does not exceed the lesser
- of 10% of the market value of all the scheme assets, and
- £50,000.
If however the transaction does need to be reported, then within 90 days of the Trustee borrowings taking place, HMRC must be advised of full details. Failure to meet this requirement can incur financial penalties and jeopardise the scheme's approval.
After A-Day
Details on Trustee's borrowing after A-Day (6 April 2006) can be found using the attached link.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.
Updated 6 July 2005
For professional advisers only
