Linda and Sue own a chain of hairdressers and are joint members of a SSAS with a value of £100,000 of which £50,000 is in cash. They decide to establish a new branch of their hairdressing business and require £50,000 to do so. Their bank is averse to lending them the money in the current financial climate, in spite of the fact that Linda and Sue know that borrowing £50,000 is fully sustainable by the business, and would also charge a high rate of interest.
A loan agreement is therefore drawn up for the SSAS to lend £50,000 to the business. A charge is placed on another company property so that the scheme can regain its funds in the event of default.
The business repays the loan with intererest over the maximum-allowed period of five years, ultimately benefiting Linda and Sue much more than borrowing from the bank. Furthermore, as the loan is from the SSAS, and thus ultimately built up from untaxed income, the overall transaction is extremely tax efficient.
