Borrowing to buy commercial property through a SSAS

One of the first things many advisers know about borrowing within a SSAS is the headline rule that the scheme can borrow up to 50% of its net asset value. That figure is easy enough to remember, but in practice it is rarely the part of the conversation that determines whether a transaction succeeds. We have found that most borrowing structures work or fail because of the way they are put together rather than the borrowing limit itself.

Borrowing usually enters the conversation because a client has identified a property that the pension scheme cannot quite purchase outright. The additional finance may come from a commercial lender, another business or, in some circumstances, another party willing to lend on commercial terms. The objective is often straightforward: provide the pension scheme with sufficient purchasing power while allowing the wider transaction to proceed. The practicalities, however, tend to be considerably more nuanced.

One of the reasons is that borrowing within a SSAS does not sit in isolation. It almost always interacts with the wider structure of the transaction. The lender needs to understand who is borrowing, what security is being offered and how that security relates to the pension scheme. If the sponsoring employer is also involved in the purchase, or borrowing alongside the SSAS, the position can become more complex because the pension scheme cannot simply be treated like another commercial entity. Protecting the assets held within the pension remains a fundamental consideration throughout the process.

We regularly find ourselves discussing transactions that appear entirely workable until the lending arrangements are examined in more detail. A bank may quite reasonably expect security over the whole property, while the pension legislation requires the interests of the scheme to remain properly protected. Neither approach is necessarily wrong. They are simply operating from different frameworks. Much of our role is helping those different perspectives come together before they become obstacles later in the transaction.

That is why we encourage advisers to involve us before borrowing arrangements become fixed. We have seen situations where a property purchase was close to completion before it became apparent that the proposed lending structure would not work as intended within the pension scheme. In many cases the client’s objective did not need to change. The borrowing simply needed to be structured differently. Those conversations are almost always easier at the beginning of a transaction than they are a few days before completion.

The same principle applies to the choice of lender. Many high street lenders are familiar with commercial property, but fewer regularly lend to pension schemes. That does not necessarily prevent a transaction from proceeding, but it can influence the questions they ask, the security they require and the amount of time the process ultimately takes. We often find that helping lenders understand the pension structure is just as important as helping clients understand the borrowing itself.

Perhaps the biggest misconception we encounter is the assumption that borrowing through a SSAS works exactly like borrowing through a company. Although the commercial objective may be identical, the legal and regulatory framework is not. The trustees have different responsibilities, the pension scheme has different obligations and the interests of the members must remain protected throughout. Those distinctions may not always be obvious when a transaction begins, but they often become significant as it develops.

That is why we rarely think about borrowing as a standalone exercise. It is simply one part of a wider commercial structure. Once we understand what the client is trying to achieve, who is involved in the transaction and how the purchase is being funded overall, the borrowing usually becomes much easier to place in context. Sometimes the original proposal works perfectly well. Sometimes a relatively small adjustment produces a much stronger outcome while still achieving exactly the same commercial objective.

Looking back across the transactions we have supported, the borrowing itself is seldom the most difficult part of the process. More often, success comes from recognising how the lending arrangements interact with everything else happening around them. When advisers, lenders, solicitors and trustees all understand those relationships from the outset, borrowing becomes another tool within the wider transaction rather than the issue that defines it.