SIPP Self Invested Personal Pension - Overseas Residential Property now can be Included
Article Date : Tuesday, January 04, 2005
Property really is the new pension.
From April 2006, a UK approved pension plan will be able to invest in residential property. This is the first time that UK taxpayers will be able to place residential investment property (including buy-to-lets and overseas homes) into a self-invested personal pension (SIPP). The new rules will be highly attractive to many UK individuals as it offers both tax advantages and the resources to financing the purchase.
Looking ahead to the new rule changes, Erna Low Property, the UK representative and agent for Intrawest, the specialist ski and spa resort developer, has formed an alliance with independent financial advisors Cavendish Ware. Erna Low has an extensive portfolio of off-plan developments in already well-established destinations in Europe, North America and the Caribbean.
The rule changes coming into force in April 2006 enables a pension fund to buy property that may have residential use. This has previously not been acceptable. The new rules will enable the pension to borrow up to 50% of the value of the fund to buy property, so, for example you will need a fund of £100,000 to buy a £150,000 property. Any rental from a buy-to-let or holiday home must be reinvested in the fund but it will be free from income tax up to 40% and any capital gains tax on any gains made in the value of the property when you sell (for properties based in the UK only). Investors should however, seek professional advice and guidance on local tax laws for any overseas property invested in their SIPP. In some countries a SIPP may not be exempt from overseas taxes or local capital gains tax (CGT) on the sale of the property. In addition, although investors will be able to put holiday homes into their SIPP, they would have to pay rent for the privilege as it is owned by the pension fund.
The attraction of the new rules is clear. Many individuals may want to purchase a holiday home, but may not necessarily have the financial resources to do so. By using existing pension assets, they can achieve their aim as personal pension plans can be converted into a SIPP in order to invest directly in residential property. From 2006, an individual can pay 100% of their salary (un-taxed) or up to £215,000 into their SIPP (up to a maximum of £1.5m). In addition a company can contribute any amount on behalf of the individual employee, although there may be tax issues on the individual if the contribution exceeds £215,000. Lastly, there are no restrictions on separate SIPP's purchasing one property, so a husband and wife could combine their pensions to purchase a property.
According to Adrian Ware, managing director at Cavendish Ware: "The whole aspect of using pension schemes to purchase residential, overseas property is very new to all of the SIPP providers. The legislation still requires clarity in certain areas. However, in principal, an individual can agree to exchange off-plan personally now, and then complete through the pension plan post 2005. A key aspect of the Intrawest properties (available through Erna Low) is that there is significant opportunity for capital growth in the value of the property, and the pension scheme, and therefore the client will benefit from this."
Joanna Yellowlees-Bound, CEO of Erna Low says: "There are likely to be two main categories of client who will take advantage of the new rules. The first is likely to be the largest group who wish to purchase property and are looking for both the right property, in the right location with the method to finance the purchase - this is the emotional investor. The second are those clients who now see the purchase of an off-plan Intrawest property as an attractive investment opportunity that could fit well into their Pension Fund - this is the financial investor."
Above Article from: http://www.newskys.co.uk/property_news/money_corner/719/article.html
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