Focus 117 – Loanback Securities (Residential Property)

For some time we have not permitted a first charge security over residential property for Loanbacks from our Small Self Administered Schemes (SSAS). Following initial legal consultation we took the view that in the event of default the trustees would either end up with an interest in said residential property or physically take possession. Either way this would lead to a potential tax charge on the scheme itself and the scheme administrator of up to 70% the value of the residential property. Clearly a charge we would want to avoid being made to any of the scheme’s we act for.

As is often the case there has been differing legal opinions on this matter and we know some firms have been allowing residential property as security. Due to increased interest in this type of security from IFAs, and after further input from our legal advisers we have discovered that we can establish a first charge that will satisfy HMRC requirements that will not result in an interest in said property being created on default.

This is achieved by removing the usual right in the event of default for the mortgagee to take possession of the property in question – it is this act that would usually put the scheme in breach of the rules, as we understand. Instead this is replaced , in the event of default, with a right  to appoint an LPA receiver, who would take possession of the assets, realise them and pass the cash proceeds to the scheme.

Based on this new understanding we are now prepared to consider UK based residential property as security for a Loanback from a SSAS. Revised questionnaires and procedures have been drawn up to deal with any such queries. Should you have any queries concerning this please do not hesitate to speak to your usual contact:

David Bonneywell, Midlands/East, 07771 986 539

Michael Hurley, London, 07826 067 563

James Cannon, North West, 07539 121 220

Gemma Fenton, Wales/South West, 07940 254 064