Both SIPPs and SSASs are permitted to borrow and the rules are identical for both.
In what circumstances is your pension permitted to borrow funds?
Your pension can borrow funds for such purposes as property purchase and/or development, funding other investments, payment of benefits, or to fund the payment of a pension sharing order on divorce.
How much are you allowed to borrow?
The maximum amount that can be borrowed is 50% of the net asset value of your pension arrangement (not 50% of the purchase price of the property). When calculating this limit, all existing borrowing must be taken into account.
Can you borrow to cover the VAT on the purchase of a property?
Your pension can borrow to cover the VAT on the purchase of a property and this will normally be repaid when we reclaim the VAT from HM Revenue & Customs. You should note however that the borrowing for VAT is included in the 50% limit outlined above (eventhough it is normally only a short term loan).
Who can you borrow from?
The borrowing will usually be from a bank on a secured basis. However, your pension can borrow from any party, included those connected to the scheme. Whoever is used, the borrowing must be on commercial terms.
There is no specific requirement for the loan to be secured. However, most lenders would require security under their normal commercial terms. This would mean that borrowing from connected parties would also need to be secured.
What about borrowing that was taken out before the 6th April 2006?
Borrowing which was taken out before 6 April 2006 will not be re-tested against the above conditions after that date. However they will be taken into account should you wish to borrow further amounts.