Capital Adequacy
Hartley Pensions Limited are in full compliance with the latest FCA capital adequacy rules that came into force affecting SIPP providers.
How it affects you ...SSAS Investment Ideas
A SSAS can make a loan of 50% of its fund value to a connected party. This means any interest due on the loan is paid directly into the SSAS rather than to a bank or mortgage lender.
The loan must always be secured by a first charge on an asset of at least equal value to the loan, including interest. The loan must be repaid over a maximum of a period of 5 years. The rate of interest charged on the loan must be on commercial terms and be at least 1% more than the average base lending rent charged by the six largest banks. The loan value must not exceed 50% of the total SSAS value.
Borrowing
A SSAS can also borrow money, subject to terms and conditions, for investment purposes. For example, the SSAS may raise a mortgage to assist with the purchase of the company’s premises by the scheme and the mortgage repayments may then be covered, in all or in part, by the rental income that the company pays the SSAS.
A business, ABC Ltd, is expanding quickly. The business owner, Simon, has £100,000 in a personal pension from a previous employment. Following advice from his financial adviser Simon establishes a SSAS ‘ABC Ltd SSAS’ and transfers in his Personal Pension from his current provider. His company then makes a contribution of £100,000 on his behalf which is within the relevant Annual Allowance limits using ‘carry forward’. The SSAS is now worth £200,000 however after the company has made the contribution the cash flow position is problematic. In order to continue with the business expansion Simon requests a loan back from the SSAS to his business of £100,000, 50% of the total SSAS value.
The loan is agreed over the maximum term of five years with regular capital and interest repayments, at a commercial rate of interest. As the loan must be secured on assets to at least the value of the loan Simon offers a first legal charge over some land he owns personally. If ABC Ltd defaults on the loan the SSAS can then take ownership of the security to recover its money. The remaining £100,000 is then invested in equities and managed on a discretionary basis in line with Simon’s personal attitude to risk. The SSAS receives its capital back over the next five years and receives interest as an investment return.
