Loans to pension schemes

Registered pension schemes can borrow up to 50% of the scheme's net asset value. Such borrowing can be from any source, and need not be secured on the scheme's assets.

Loans to schemes can be made by individual scheme members and their employers. Where interest is paid by the pension scheme at a rate in excess of a commercial rate, the excess will be subject to a charge under the unauthorised payments provisions. There is, however, nothing which prevents a lower than commercial rate of interest of being charged by the lender or, indeed, no interest whatsoever.

In the context of both individuals and owner managed companies, it is, therefore, possible to lend temporarily surplus funds to the pension scheme. The funds can subsequently be repaid, free of interest to the lender, thereby leaving the whole of the income or gains enjoyed in the interim in the tax free ownership of the scheme.

Owner managed companies holding surplus cash, which may prejudice the shareholders' entitlement to the business asset taper relief, can consider the merits of lending the cash to a registered scheme as an alternative to the more usual payment of a dividend.