SSAS Loanback: A Detailed Worked Example

SSAS Loanback: How It Works in Practice

The SSAS loanback is one of the most distinctive features of a Small Self-Administered Scheme. Unlike most pension vehicles, an SSAS can lend money directly to its sponsoring employer — providing immediate business funding while simultaneously creating a secure, interest-bearing return within the pension scheme. When structured correctly, this is a fully HMRC-compliant arrangement. When structured incorrectly, it can trigger substantial tax charges.

This article provides a detailed, step-by-step worked example of an SSAS loanback — showing the rules, the numbers, and what happens over the life of the loan.

What Is an SSAS Loanback?

An SSAS loanback (formally known as a "pension scheme loan to a sponsoring employer") is a loan made from the SSAS trust to the company that established the scheme. It is permitted under HMRC rules provided the following conditions are strictly met:

• The loan must not exceed 50% of the scheme's net asset value
• The loan must be secured by a first legal charge over an asset owned by the borrower
• The interest rate must be at least 1% above the Bank of England base rate
• The loan term must not exceed five years
• The loan must be repaid in equal capital and interest instalments (typically quarterly)

If any of these conditions are breached, the loan becomes an "unauthorised payment" and the tax consequences are severe — a 40% tax charge on the loan amount, plus a potential 15% scheme sanction charge.

The Scenario

Our example involves a recruitment business with a three-member SSAS (the founder and two directors). The scheme holds £320,000 in assets: £200,000 in cash and £120,000 in a diversified equity fund.

The business has identified an opportunity to expand into a new sector and needs £150,000 of working capital. The bank has offered a loan at 8.5% with a personal guarantee required. The directors want to explore whether an SSAS loanback is more cost-effective.

Step 1: Confirm Eligibility

The maximum loanback amount is 50% of the scheme's net assets: 50% × £320,000 = £160,000. A £150,000 loan is within this limit.

The Bank of England base rate is currently 4.75%, so the minimum SSAS loanback interest rate is 5.75% (base rate + 1%). The trustees decide to set the rate at 6.0% — above the minimum, commercially reasonable, and competitive with what the bank has offered.

"In our experience, the loanback is most powerful when it replaces expensive unsecured bank lending. The business saves money on interest, but — crucially — the interest goes into the pension scheme rather than to a bank. You are effectively paying interest to yourself, inside a tax-free wrapper." — Matt Lenzie

Step 2: Identify Suitable Security

The loan must be secured by a first legal charge over an unencumbered asset owned by the company. In our example, the company owns its registered office — a modest commercial unit purchased five years ago for £180,000 and now valued at £220,000 by a RICS surveyor.

The company has no existing mortgage on this property. A first legal charge in favour of the SSAS trustees can therefore be registered without the need to discharge any prior security.

Step 3: Agree Loan Terms

The loan terms are documented in a formal loan agreement prepared by solicitors. Key terms:

• Loan amount: £150,000
• Interest rate: 6.0% per annum (fixed for the term)
• Term: 5 years (maximum permitted)
• Repayment structure: Equal quarterly instalments of capital and interest
• Security: First legal charge over the company's commercial unit at [address]
• Default provisions: The SSAS can enforce the charge and sell the property if the company defaults on any repayment

Quarterly repayment amount calculation:
Loan: £150,000 at 6.0% over 5 years (20 quarters) = £818.75 per quarter in interest-only terms... but HMRC requires equal capital and interest (P&I) instalments.
Using a standard annuity calculation: quarterly payment = £8,745 (approximately).
Over 20 quarters this totals £174,900 — meaning the scheme earns £24,900 in interest income over the five-year term.

Step 4: Register the Security and Disburse the Loan

The trustees' solicitors register a first legal charge over the company's commercial unit at HM Land Registry. Once the charge is confirmed, the SSAS bank account transfers £150,000 to the company's current account.

The scheme administrator records the loanback as a scheme asset — a secured loan receivable of £150,000 — in the scheme accounts.

Step 5: Managing Repayments

The company pays £8,745 per quarter into the SSAS bank account for five years. These repayments are split between capital (which reduces the loan receivable on the scheme's balance sheet) and interest (which is recorded as scheme income).

All interest income earned by the scheme is tax-free. Over the five years, the scheme earns £24,900 in interest — sheltered from income tax entirely.

For the company, the interest payments are a deductible business expense — reducing the corporation tax bill each year. At a 25% corporation tax rate, the company saves approximately £6,225 in tax over the loan term.

Comparing Loanback to Bank Borrowing

Factor	Bank Loan	SSAS Loanback
Interest rate	8.5%	6.0%
Personal guarantee required	Yes	No
Interest beneficiary	Bank	Your pension scheme
Total interest cost over 5 years	~£35,000	~£24,900
Interest tax-free within scheme	No	Yes

The financial advantage of the loanback is clear. The company pays a lower interest rate, avoids a personal guarantee, and the interest it does pay flows directly into the directors' pension scheme — growing tax-free.

What Happens at the End of the Loan Term?

After five years, the loan is fully repaid and the legal charge is discharged. The SSAS has received back its £150,000 principal plus £24,900 in interest. This capital is now available for reinvestment — perhaps in a further loanback, a commercial property purchase, or a diversified investment portfolio.

For more on how SSAS schemes can use their assets flexibly, read our guide on SSAS portfolio building or learn about SSAS property mortgages as an alternative deployment strategy.

Key Takeaways

• An SSAS can lend up to 50% of net assets to the sponsoring employer
• The loan must be secured, carry at least base rate + 1% interest, and be repaid over a maximum of 5 years
• Interest flows into the pension scheme tax-free — a significant advantage over bank lending
• Breaching the HMRC rules on loanbacks triggers severe tax penalties
• Professional advice and proper documentation are essential

Explore Loanback Options

If your business needs working capital and your SSAS has sufficient assets, a loanback could be a highly tax-efficient solution. Contact our team for a detailed review of your scheme's eligibility, or read our related case study on connected party lease arrangements.