Buy to Let Properties
Old News - Self Invested Personal Pension
Freehold and leasehold properties are allowable investments, as are listed properties. Timeshare properties are likely to be discouraged as they are depreciating assets - something the government is not keen to see placed within a pension umbrella.
Investors will be able to transfer property they already own into their pension. There maybe tax advantages to this, in terms of the tax relief that could be earned on the transferred asset. However, the investor is also very likely to incur a capital gains tax charge.
It is also worth remembering that this is not the panacea UK homeowners might expect. One basic rule overarches the treatment of property: you cannot personally benefit from or profit from residential property held within your Sipp.
So, that holiday cottage of yours could be transferred into a Sipp, but any rental income received would be pension income, not your income.
Any time you wished to use the place you would have to pay market-rate rent into your pension or face being taxed on the benefit. Similarly, any foreign homes included within a Sipp would still be subject to full local taxation abroad.
And anyone thinking of putting their main domestic residence in a Sipp should think again.
While it is entirely possible to do so, and to then pass that asset from your Sipp to, say, your child's Sipp, the Finance Act 2005 introduced new legislation whereby such reallocation of funds would incur a tax charge of 35%.
So, given that the act of putting your main residence into your Sipp would mean you would have to then pay rent to your Sipp to continue living there or incur a benefit-in-kind charge, it is not going to be the inheritance tax avoidance measure many had hoped for.
That leaves buy-to-let properties that an investor wishes to keep for a long time as the most appropriate residential property to be considered for inclusion in a Sipp.
Even then, says Lee Grandin of Landlord Mortgages, this kind of investment would remain too costly an exercise for most consumers.
You would need a pension fund of at least £80,000 and to borrow an additional £40,000 to purchase the average UK buy-to-let property. From anecdotal evidence, I really don't think that most UK consumers have this sort of money either in their pension pot or their back pocket. And even if they could access this sort of capital, they can only contribute 100% of their salary or up to £215,000 (whichever is the lesser amount) into their Sipp each year. So unless they already have an existing pension fund of significant size, they are going to save for several years before they can think about investing.
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