Can My QROPS Lend Me Money?

Posted by Paul Davies on 27/10/09 14:06

From a legislative point of view, all registered UK pension schemes are able to lend money from the scheme to unconnected third parties. Many UK pension providers, however, have their own rules and restrictions on this. This would also be true of offshore pensions that are registered as Qualifying Recognized Overseas Pension Schemes (QROPS).
Although the UK’s Her Majesty’s Revenue and Customs (HMRC) would expect unconnected third party scheme loans, from a UK registered  pension scheme or a QROPS, to be secure and on commercial terms, there is no strict limit on the amount of the loan nor legislative controls on the length of the loan term or the repayment terms.

However, although scheme loans are legislatively possible, many registered UK pension scheme providers would not allow third party loans within their schemes – given the additional monitoring that would be needed to ensure there is no abuse of the system. A QROPS provider would, in most circumstances, take the same stance as a UK registered pension or the QROPS may be in a jurisdiction where any type of loan facility is not permitted whatsoever.

One point that is the same for UK schemes and for a QROPS, is the rule on loans back to the pension member. This is not permitted. Should a UK pension member transfer their UK pension to a QROPS and then access a loan to themselves, under the connected parties rule it would be an unauthorized payment and subject to a high HMRC tax charge.