Updated: July 17, 2019

SIPP Loans

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Tony Stevens

Author: Tony Stevens - Finance Expert

Updated: July 17, 2019

Lending to and from a SIPP is a popular topic because while it can be potentially profitable, it can also be a complicated prospect. We go through some of the basic details and information below.

In this article we’ll discuss:

Can I lend or borrow against my SIPP?

Yes, you can do both! It’s possible to make a loan from your SIPP for commercial purposes. It’s also permissible to borrow against your SIPP to fund a larger investment, typically a commercial property.

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What are SIPP loans and how do they work?

A SIPP pension loan is where you agree to and arrange a loan from your SIPP, usually to a company but in some circumstances to an individual, on a commercial, arm’s length basis.

SIPP lending or borrowing, is when your SIPP is used as partial security against a loan to borrow more money and increase its investment capacity.

It’s possible to use both of these and in many cases it’s something that can help grow your total SIPP pension pot for when you retire, by more than if you didn’t conduct any SIPP related lending.

There are numerous rules around SIPP lending, however, making it important that you seek the right advice from an experienced professional if you’re considering a SIPP loan. Make an enquiry so we can put you in touch with an expert to ensure you make an informed decision about your pension.

Lending from a SIPP

You can use your SIPP to act a little like a bank and lend money from it to others, on commercial terms. Lending from a SIPP allows you to lend money from your pension to unconnected third-party individuals and businesses, in return for a loan agreement with a fixed term of interest.

HMRC rules state that:

  • You may not use your SIPP to lend money to a connected person, such as a spouse or family member
  • You cannot lend from your SIPP to a company controlled by a connected person
  • Your SIPP can’t be used to lend money to fund the purchase of residential property. Investing in a residential property is possible, but you could face a 55% tax bill on your investment. You could invest in a residential property with your SIPP by investing in a residential property fund.

Can my SIPP lend me money?

No, you can’t take a cash loan from your SIPP. SIPP rules clearly state that SIPP loans can only be made to an unconnected third party. If you use your SIPP to lend money to yourself or a connected party, that loan will be taxed. From age 55, you are able to drawdown a maximum 25% lump sum, tax free.

It’s important to ensure you utilise the flexible lending benefits of your SIPP correctly, to gain the best financial benefit for your future and also so you don’t fall foul of HMRC rules. Get in touch so we can connect you with an advisor who can offer the right advice for your needs.

Can a SIPP lend money to a company?

Yes, SIPPs can lend money to a company. But, there are rules to adhere to. They include:

  • The company is a definite third party business, as SIPP loans cannot be made to connected parties
  • That the loan terms are in line with arm’s-length policies
  • The interest charge on the loan is set at market finance rates and set over an agreed schedule

This can be done in a variety of ways, although individual SIPP lending rules do vary, from provider to provider.

Be aware, though, that while a SIPP can lend money to a company, it cannot provide loans to a sponsoring employer. The third-party, unconnected rule applies and your employer is classed as a connected party.

Can a SIPP make a loan to individuals?

You can make a loan to individuals with a SIPP, but again, there are some strict criteria if you choose to do so. The loan must be made and managed at arm’s length and with market rate interest rates.

In addition, the individual cannot be a connected party to the SIPP holder, so no loans to siblings or other family members, even if it’s to finance a business venture. In addition, not all SIPP providers support this function. Or if they do, they have very strict rules of their own, on top of rules regulated by HMRC, as to how this type of SIPP finance lending works.

To find out more about using a SIPP pension to make a loan to an individual, get in touch. We will connect you with an expert who can give you all the information you need about SIPP loans.

Can I borrow against my SIPP to fund another investment?

Yes, SIPP holders can borrow against their pension to fund additional investments. In most cases you can borrow up to 50% of the value of your SIPP to finance an investment in commercial property or another business.

For example, if your SIPP is worth £200,000, you should be able to borrow an additional £100,000 against it. This will give you £300,000 to make an investment.

Can a SIPP be invested in commercial property?

Yes, a SIPP can invest in or own commercial property. It’s a popular way to help support a business, as doing so usually secures regular rental payments into your pension pot. By borrowing against your SIPP to raise capital to invest in commercial property, it’s possible to improve the returns generated by your SIPP.

It’s also a way of supporting a business, to provide facilities they need to rent, but without paying directly into that business. If the business you initially rent your property to fails, you still have the asset, which can be rented to another business, or sold, to recoup your initial outlay.

Lending to or borrowing from your SIPP is a way to potentially make your pension work harder for you and generate welcome additional returns. However, to make the most of the flexibility offered by your SIPP, you should always seek professional advice.

Speak to an expert today

If you have questions about SIPP loans and would like to speak to an expert who can provide more information, call us today on 0808 189 0463 or make an enquiry here.

Then, just sit back and relax while we do all the hard work of finding the advisor with the right experience for your personal needs.

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Tony Stevens

Tony Stevens

Finance Expert

About the author

Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.

Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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