New Rules on SSAS & SIPP Borrowing

Her Majesty's Revenue and Customs (HMRC) has clarified the rules affecting existing SSAS & SIPP borrowing. Where a SSAS or SIPP has existing borrowing in place from before 6 April 2006, and this exceeds the current maximum limit of 50% of the scheme net assets, any re-structuring of the loan leads to an unauthorised charge being levied on the scheme.

In current market conditions this could lead to financial hardship for a scheme where investment income is falling yet interest on the loan remains at a high level. HMRC have recognised this point and will now accept that such borrowing can be restructured, including a change in the interest rate and/or a change in the term of the loan, without generating an unauthorised charge. This is providing there is no increase in the amount borrowed and that there is no change in the borrower.

Transfers from SSAS or SIPP to a new provider

At this stage, transferring such loans to a new scheme (which would result in a change in the borrower) would appear to still trigger an unauthorised charge. This is the subject of ongoing discussion with HMRC and we will inform you here of any changes in this position once clarified.

Rental reductions in line with market conditions

In current market conditions tenants of SSAS and SIPP properties may be experiencing difficulty in paying their contractual rent. To avoid triggering unauthorised charges the scheme should be enforcing the terms of the lease in a commercial manner.

The practical problem faced by schemes is in assessing what would be regarded as "commercial", particularly if the tenant is connected with the scheme. Recognising that it is better to have a lower rental income than no tenant at all, HMRC has confirmed that the terms of a lease can be reviewed, leading to potentially lower rents, provided that the scheme can demonstrate that the revision is on commercial terms. To demonstrate commerciality where connected tenants are involved the scheme must:

Obtain professional advice considering the terms of the lease in relation to similar properties in the area in the current market.
Obtain professional advice considering the financial circumstances of the tenant and the likelihood of finding a replacement tenant.