Tag: borrow

Did you know …. you can lend money to your own pension

Pension background concept

If you have a SSAS or a SIPP Pension you will probably want to invest some of your funds in Commercial Property – Shops, Office, Industrial Units. Pension funds can borrow money and with the current interest rates low and yields as high as 10%, you can increase your return and use less cash by borrowing.

But one thing you may not know is that connected parties can lend to the fund…

Trustees of registered pension schemes may sometimes wish to borrow funds, for example to enable them to purchase an asset. There is no objection to a registered pension scheme borrowing funds for any purpose providing that the scheme administrator/trustees are satisfied that the borrowing will benefit the scheme and that the borrowing is within the rules laid down by the Department for Work and Pensions (DWP).

A registered pension scheme is treated as borrowing or having a liability of an amount, if that amount is to be repaid or met from cash or assets held for the purposes of the pension scheme.

A registered pension scheme may borrow funds from any individual, company or financial institution whether or not they are connected to the scheme, but any borrowing from a connected party which is not made on commercial terms will be subject to a tax charge – see RPSM04104020 .

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm07104010.htm

This is useful where you have paid in the maximum allowed pension contributions but you still have cash, so you could lend to your pension to buy a property.

steve@bicknells.net

 

 

Borrowing money from a SIPP or SSAS

Final Salary schemes have pretty much ceased to exist, Stakeholder Pensions never really caught on, so the majority of us have one of the following:

Personal Pension Plan – most people have or have had one of these, its the kind of scheme where your IFA comes along every year, asks you how much risk you want to take and then invests your pension in a Managed Fund or similar.

SIPPs – Self Invested Personal Pensions – these are a little more expensive but you have a lot more control and you can invest directly into Commercial Property, borrow money to buy Property and you can make loans to unconnected parties

SSAS – Small Self Administered Scheme – these are generally a little more expense than both Personal Pensions and SIPPs but you have even more control and you can lend to your own company

http://www.jameshay.co.uk are great for SIPPs and SSASs, there many other great providers too

You could have a combination of the above and its possible to transfer money between pension plans (but there is normally a fee for the transfer)

When you pay earned money into you pension you will get tax relief at either 20% or a higher rate but its limited to a maximum of your earnings.

Your employer can pay in too, maximum contributions are now £50k

http://www.hmrc.gov.uk/incometax/relief-pension.htm

You can also carry forward unused allowances

http://www.hmrc.gov.uk/pensionschemes/annual-allowance/carry-forward.htm

SIPPs and SSASs can lend money at market rates to unconnected parties without too many restrictions a great explanation of this is given on this link

http://www.curtisbanks.co.uk/assets/downloads/guides/guide-loans.pdf

Alternatively you could use http://www.thincats.com/ or http://www.fundingcircle.com/ or I am sure there are others too

Lets say you are 40% tax payer, you pay in £100k out of earned income, the tax man gives the tax back of £40k, so you have £140k to lend, because its short term lending against assets you will probably be paid interest at 10% to 15%, thats a pretty good return (I appreciate there are risks, as there are with everything in life and of course you should always take professional advice before doing anything).

If you are a business looking for funding perhaps borrowing from a SIPP or SSAS may be the solution, it certainly seems to be catching on. But just be careful who you choose to lend to and against what assets.

steve@bicknells.net

Correction – if you pay in £60k it will be topped up by £40k to £100k if you are a 40% tax payer