SIPP Lending Rules

Under HMRC rules, you are able to lend money to an individual or business from your SIPP. This could potentially be profitable for you, the SIPP holder.

Your SIPP can also borrow money from a bank or institution to fund large investments, but there are strict rules around SIPP loans, which, if not adhered to, could end up costing you.

In this guide, we look at SIPP lending rules in detail and explain why it’s important to always consult an advisor if you’re considering this route.

Read on for more information or jump to the section that’s relevant to you via the links below…

What are the rules around SIPP lending?

One way of diversifying and potentially growing the size of your pension pot is by lending money from your SIPP.

The way it works is you identify an individual or business you want to lend to, agree the rate of interest and term length, and at the end of the agreement, the loan amount and interest is paid back into your SIPP, tax free, if you adhere to the strict SIPP lending rules. If you don’t, you may be hit with a very large tax bill.

The most important rules centre on who you are allowed to lend to, what they’re permitted to do with the money and how much interest you should charge.

Who you can lend to

You’re only allowed to lend money from your SIPP to an unconnected, third-party individual or business for commercial purposes, on a first-charge basis. That means you can’t grant a loan to a spouse, family member or friend, or to a company controlled by them. You are also unable to make loans to your in-laws or the spouses of your relatives.

You also can’t take out a loan for yourself or your business. Doing so would be considered an unauthorised payment and result in an unauthorised payment charge of up to 55%. A scheme sanction charge of up to 40% could also be levied against the pension scheme administrator for authorising and facilitating the loan.

You are, however, authorised to withdraw a 25% cash lump sum from any personal pension, including SIPPs, tax free but only from minimum pension age (currently 55 but increasing to 57 in April 2028).

What the loan can be used for

The loan money can be used for most business activities but it cannot be used to fund the purchase of residential property (unless the loan is being made to an unconnected party). If it is, it will attract a hefty tax charge. If you want to invest in residential property through your SIPP tax free, you can do so indirectly via a residential property fund.

How much interest you should charge

The interest rate you charge must be based on market rates. If HMRC perceives there to be any abuse of the pensions tax regime, they have the authority to deregister the pension.

Can your SIPP borrow money?

Yes, if you’re looking to fund a large investment, your SIPP is able to borrow money from a bank or other institution.

SIPP borrowing is typically used to fund the purchase of commercial property, but the money can be used for any legitimate investment that will benefit the pension scheme.

You can borrow up to 50% of the net value of your SIPP. So, if your SIPP is worth £400,000, you can borrow up to £200,000 to give you £600,000 to make an investment.

How a pensions advisor can help you make the most of your SIPP

The purpose of your SIPP is to provide you with a nest egg to live off when you reach retirement so taking the decision to lend from it, or for it to take on debt, isn’t one that should be taken lightly. That’s why if you’re considering either of the above, you should always speak to an experienced, regulated pensions advisor first.

They’ll be able to assess your circumstances, including your timescales and attitude to risk, and advise you whether to go ahead or not.

They’ll also be able to suggest which SIPP providers to approach. Not all providers will facilitate lending and borrowing so you may need to use a specialist provider. An advisor who’s familiar with the market will be able to tell you which firms can help you.

Need advice about SIPP lending? We can help! Get in touch and we’ll match you with the right independent pensions advisor today.

Can you borrow from your SSAS?

Yes. A SSAS – or small, self-administered pension scheme – is a type of workplace pension, typically set up by a limited company and managed independently by an employer, for no more than 11 employees.

A sponsoring employer – that’s the person who set up the SSAS and pays contributions into it – is able to borrow money from the SSAS. They may want to do this for cash flow purposes or to make a sizeable business-related purchase.

The loan amount can be up to 50% of the net value of the pension and net of any other loans the SSAS may have and the term must be a maximum of 5 years. The interest rate charged must be at least 1% above the average base rate of the six leading high street banks – Bank of Scotland, Barclays, HSBC, Lloyds, NatWest and RBS.