Retirement Planning: SIPP Property Investment
View all SIPP property investments
Recent changes to UK 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 it is overseas the SIPP manager must be happy with the country legislation. Placing a property within a SIPP also benefits from generous tax relief:
SIPP benefits
· 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.
Retirement Planning
Additionally, the SIPP is also allowed to borrow up to 50% of the value of it’s fund.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.
