Retirement planning: SIPP Property Investment
Recent changes to legislation mean that property that is deemed as commercial within the UK and in some cases overseas, can be placed within a pension plan – utilizing a SIPP (Self Invested Personal Pension plan).
It is up to the SIPP pension provider to be satisfied that the property being purchased can be classified as part of a hotel or is deemed as a commercial property; and where overseas, the SIPP manager must be happy with the country legislation.
SIPP Benefits
Placing a property within a SIPP also benefits from generous tax relief:
• 22 pence in every £1 contributed into a pension scheme for basic rate taxpayers and 40 pence in every £1 for higher rate taxpayers
• Capital growth is tax-free in the SIPP. Additionally, the SIPP is also allowed to borrow up to 50% of the value of it’s fund.
Retirement planning
As an illustration of the way this works, if a pension pot is worth £200,000, it can borrow up to £100,000 so that a total of £300,000 can be used to buy a property. Another way the SIPP can be used is through a ‘joint’ purchase between you and your SIPP. So for example, if you have £200,000 in the SIPP and you wanted to buy a property for £400,000 you can buy the property jointly with the fund and yourself. So in this example, with the property being bought for £400,000, if you decided that £100,000 (25%) of the property is to be purchased (and therefore owned) by the fund, and £300,000 (75%) by you (being financed perhaps by a mortgage), then 25% of the rental income derived must be put back into the SIPP and 75% can go to you.
This is a highly tax efficient model, but it is not suitable for everyone. Tax advisors and independent financial advisors can help ascertain whether this investment is suitable for you.
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