SSAS loans to the sponsoring employer

A small self administered scheme can lend money to its sponsoring employer, but only if the loan passes five tests in section 179 and Schedule 30 Finance Act 2004: it must be secured by a first charge, carry at least the prescribed rate of interest, last no more than five years, be no more than 50% of the scheme’s net assets, and be repaid in at least equal yearly instalments of capital and interest. A loan that fails any test is an unauthorised employer payment, taxed at 40% on the company with a further charge on the scheme administrator.

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Which pension schemes can lend to a business?

Only an occupational pension scheme has a sponsoring employer, which is why employer loans are a SSAS feature. Section 175 Finance Act 2004 treats a loan to a sponsoring employer, or former sponsoring employer, as an authorised employer payment if section 179 is satisfied. PTM123200 adds that a scheme that is not an occupational scheme, such as a SIPP, has no sponsoring employer, so a loan to a company connected with the member is taxed as an unauthorised payment on the member.

Some related points from PTM123100 and PTM123200:

Loans to members, or to people connected with members, are always unauthorised payments.
A loan to someone who is not a member or sponsoring employer, but is connected with one, is treated as made in respect of that member or employer.
A guarantee given by the scheme for a sponsoring employer, member or connected person is treated as a loan of the amount guaranteed.
Listed or publicly offered debentures, loan stock and bonds are not loans for these purposes under section 162(2).

What security does the loan need?

The loan must be secured throughout its term by a first charge on an asset owned by the employer or another person. When the loan is made the asset must be worth at least the loan plus interest, and no other charge on it may rank ahead of the scheme’s. If the security is replaced, the new asset must be worth at least the lower of the market value of the asset it replaces and the amount outstanding including interest.

If the loan stops being secured, or the scheme’s charge is not first, the unauthorised payment is the whole amount outstanding including interest. If a transaction reduces the value of the security, or replacement security is worth less than required, the unauthorised payment is the shortfall. Using residential property or other taxable property as security can also bring in the taxable property charges explained in SIPPs and SSASs buying commercial property.

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What rate of interest must be charged?

The minimum rate is set by the Registered Pension Schemes (Prescribed Interest Rates for Authorised Employer Loans) Regulations 2005, SI 2005/3449. PTM123200 explains that it is the average of the base lending rates of six banks named in the regulations (Bank of Scotland, Barclays, HSBC, Lloyds, National Westminster and Royal Bank of Scotland), rounded up to the nearest 0.25%, plus 1%. Rates take effect on the operative date, the sixth working day of each month, using bank rates on the reference date, the twelfth working day before that.

A fixed rate is allowed if it is at least the prescribed rate when the loan is made, and need not change while the terms are unchanged. If the rate is too low, the unauthorised payment is the amount owing multiplied by the percentage shortfall against the prescribed rate. So a rate of 4.5% against a prescribed 5% gives an unauthorised payment of 10% of the amount owing.

How long can the loan run, and can it be extended?

The repayment period must not be longer than five years from the date the loan is made. Where an employer is in genuine difficulty and capital or interest is still outstanding at the end of the term, PTM123200 allows the repayment date to be rolled over for up to a further five years. A loan can only be rolled over once, existing security can continue even if it is now worth less than the debt, and any increase in the amount lent is a new loan.

How much can the scheme lend?

Section 179(1)(a) limits the loan to 50% of the cash and the net market value of the scheme’s assets, valued immediately before the loan is made. The test is applied once, on the date the money is lent, and is not repeated if asset values later fall unless the terms change. A further advance is a new loan tested on its own date. Any excess over 50% is an unauthorised payment. This is a separate limit from the 50% cap on the scheme’s own borrowing.

How must the loan be repaid?

By the end of each loan year, the employer must have been due to repay at least the “required amount”, which is (loan plus total interest) divided by the number of loan years, multiplied by the number of loan years so far. That produces equal annual instalments of capital and interest. Front loaded repayments are acceptable because the test is a minimum. If any loan year falls short, the unauthorised payment is the largest annual shortfall.

What does a compliant loan look like?

Illustration only. A SSAS has cash and net assets of £300,000. The sponsoring company borrows £120,000 over four years, secured by a first charge on its workshop valued at £200,000. Total interest over the term at a rate above the prescribed minimum is £18,000.

Test	Position
Maximum loan	50% of £300,000 = £150,000, so £120,000 passes
Security	£200,000 covers £138,000 of capital and interest
Term	Four years, within five
Required amount each year	(£120,000 + £18,000) / 4 = £34,500

Had the scheme lent £180,000, the £30,000 above the limit would be an unauthorised payment, giving the company a 40% charge of £12,000 and the scheme administrator a scheme sanction charge.

What happens if a condition is broken?

PTM123200 calculates the unauthorised payment separately for each failed test and charges only the largest, capped at the amount lent. The company pays the 40% unauthorised payments charge under section 208. If its unauthorised payments within a 12 month reference period reach 25% of the scheme’s sums and assets, the 15% surcharge under section 213 is added. The scheme administrator is liable to the scheme sanction charge and reports the payment on the scheme’s event report. A company that receives an unauthorised employer payment must give HMRC the required details by 31 January after the tax year of payment, according to PTM134300. The full regime is in our guide to unauthorised payments charges.

On the income side, interest received by the scheme is exempt from income tax under section 186 Finance Act 2004, and section 936(2)(g) Income Tax Act 2007 lists the scheme administrator of a registered pension scheme among recipients that a company may pay gross. The company’s side of the interest is dealt with under the loan relationship rules.

What mistakes come up most often?

Lending without a registered first charge, or behind a bank’s existing charge.
Selling the asset used as security without replacing it with enough value.
Agreeing payment holidays that leave a loan year short of the required amount.
Rolling a loan over a second time, or adding new money to a rollover.
Letting rent or other sums owed by the company build up informally; under section 162(4) and (5) a debt not collected on arm’s length terms is treated as a loan and must meet the same tests.
Lending from a SIPP to the member’s company, which can never be an authorised employer loan.

Loans made before 6 April 2006 can continue outside these rules only while their repayment terms are unchanged. Directors comparing a SSAS loan with lending their own money to the company can read interest on loans to your company.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.