Pension investment - borrowing

Last updated 14 April 2026

Key points

Pension schemes most commonly borrow to help fund the purchase of commercial property, but borrowing can be used for any legitimate purpose intended to benefit the scheme
Borrowing is not an option under all schemes – in practice, it’s typically only available under SSAS or SIPP
The maximum a scheme can borrow is 50% of the scheme's net fund value at the borrowing date
Transactions with connected parties are allowed, but there are penalties if not done on normal commercial terms

Pension scheme borrowing – the rules

Pension schemes most commonly borrow to buy property but, legislatively speaking, any registered pension scheme can borrow for any legitimate purpose intended to benefit the scheme. For example, a pension scheme could borrow to:

buy a new investment
improve an existing asset or
manage an unexpected need for liquidity (for example, to pay a lump sum death benefit promptly where the scheme holds illiquid assets).

However, in practice, product providers and pension trustees limit the investment options available under some pension schemes or products. So borrowing is only likely to be available under more specialist pension schemes, like SIPP or SSAS, and they may restrict when schemes can borrow and what it can be used for.

Permitted lenders

Pension schemes can borrow from anyone. But if a scheme borrows from a connected party (such as a member) it must be on normal commercial terms, otherwise the transactions could be treated as value shifting transactions, resulting in unauthorised payment tax charges.

Security

There's no legislative requirement for borrowing to be secured but, in practice, most lenders will insist on borrowing being secured against the pension scheme assets.

Borrowing limit

The maximum amount a pension scheme can borrow is an aggregate amount of 50% of the scheme's net fund value at the borrowing date.

Scheme assets should be valued on a market value basis, with deductions for any existing liabilities (such as existing borrowing). Both crystallised and uncrystallised funds are included. The capital value of a scheme pension payable is 20 x the annual pension.

The limit is based on the net fund value immediately before the borrowing is taken. It doesn't have to be re-tested if the fund value drops after the borrowing has been taken.

Note that, because new borrowing is based on the net asset position, any existing borrowing will affect the amount of new borrowing allowed.

It's possibly easiest to see how the limit works in practice by looking at some examples.

Example 1 - SIPP with no existing borrowing

Craig has a SIPP fund worth £400,000. The main asset of his SIPP is his workshop. Business is booming and Craig is looking to borrow within his SIPP to buy an additional neighbouring workshop that's become available for £130,000.

He knows that he could sell other SIPP assets to buy the new workshop, but he wants to keep a spread of investments to reduce investment risk.

The SIPP's net asset position is as follows:

Asset	Market value
Property	£260,000
Insurance policies	£125,000
Cash deposits	£15,000
Total	£400,000

The SIPP can borrow up to 50% of the net fund value. This means that up to £200,000 can be borrowed to help buy the extra workshop.

The maximum borrowing calculation is pretty straightforward if there's no existing borrowing in place. But what if a pension scheme wants to add to existing borrowing? Let's look at a couple more example calculations that highlight some issues where there's existing borrowing and some of the options that are available.

Example 2 - SIPP with existing borrowing

Let's return to our example of Craig but, this time, let's assume that his SIPP still has an outstanding mortgage of £100,000 from the purchase of the original workshop. How does this affect the borrowing limit?

The SIPP's net asset position is now:

Asset	Market Value
Property	£260,000
Insurance policies	£125,000
Cash deposits	£15,000
Borrowings	(£100,000)
Total	£300,000

The SIPP can borrow up to 50% of the net fund value. This means that the maximum borrowing, in total, is £150,000.

The existing borrowing of £100,000 has to be taken off this limit to work out how much new borrowing can be taken. This means that the SIPP can only borrow £50,000 to help buy the new workshop - so Craig will have to either sell other SIPP assets, or pay more into his SIPP fund, to raise the purchase price.

As you can see, because the maximum borrowing limit is based on the pension scheme's net fund value, existing borrowing can severely restrict the new borrowing allowed. In fact, if existing borrowing is already above the 50% limit, no new borrowing can be taken at all.

Example 3 - SIPP with existing borrowing above 50%, but with a possible new payment

Returning again to our example of Craig, what if his SIPP had an outstanding mortgage of £175,000, but his company could make a payment into his fund to help buy the new workshop?

The SIPP's net asset position would be:

Asset	Market Value
Property	£260,000
Insurance policies	£125,000
Cash deposits	£15,000
Borrowings	(£175,000)
Total	£225,000

Total borrowing can't be more than £112,500 (50% of the net fund value). As the existing borrowing of £175,000 is already over this limit, no new borrowing can be taken by the SIPP (although the existing borrowing can stay in place).

New payment - existing SIPP or new SIPP?

If Craig's company could afford to pay £100,000 to help with the purchase, would it be better to set up a new SIPP with this payment rather than paying to his existing SIPP?

If the £100,000 was paid to the existing SIPP, the maximum borrowing limit would increase to £162,500 (50% of £325,000). As the existing borrowing is already over this limit, it still would not be possible for the SIPP to take any new borrowing.

But a new SIPP could borrow £50,000 to add to the £100,000 fund to buy the workshop.

Penalties for breaking the rules

If the borrowing rules are broken, it normally results in tax charges. Broadly speaking, there are two sets of circumstances where tax charges can arise:

New borrowing is taken which breaks the 50% limit or
Borrowing is taken from a connected party on non-commercial terms

Borrowing too much

If new borrowing results in the 50% limit being exceeded, the amount of the new borrowing above the limit is treated as a scheme chargeable payment. The scheme will face a scheme sanction tax charge of 40% of the scheme chargeable payment.

Note that the tax charge is only due on the new borrowing. If a scheme has existing borrowing in place which is above the 50% limit (for example, borrowing taken before a drop in the value of the scheme assets) there's no tax charge on the 'excess' existing borrowing.

If a scheme replaces or restructures existing borrowing, there's no need to retest against the 50% limit so long as there's no increase in the amount borrowed.

Non-commercial borrowing from a connected party

If borrowing is taken from a connected party on non-commercial terms, it's treated as a value shifting transaction.

Where a pension scheme is considered to be subsidising a connected party, the amount of subsidy involved will be treated as an unauthorised payment from the pension scheme under the value shifting rules.

For example, if a scheme pays too much interest, the difference between the interest charged and the market rate of interest is treated as an unauthorised payment.
Similarly, where a connected party is considered to be subsidising a pension scheme, for example by providing interest free borrowing, the amount of the subsidy is treated as an unauthorised payment under the value shifting rules.

Making (or being deemed to have made) unauthorised payments can result in significant tax charges.

More information on connected parties and the taxation of unauthorised payments can be found in our guide 'Pension investment options and restrictions - connected parties, employer-related investments and taxable property'.