Thursday, 14 June 2012

Investment Property SIPPs

As A Day looms we examine Investment Property SIPPs and what the advantages and disadvantages of buying property with the money in your SIPP are likely to be.

Like any pension scheme Self-Invested Personal Pensions (SIPPs) provide you with retirement and related benefits. SIPPs allow you the accessibility and control to invest into your pension scheme more flexibly and you also have the possibility of income withdrawal. In other words, SIPPs enable you to manage your own investment. The regulations behind SIPPs are basically the same as those behind personal pensions (e.g. 25% tax-free lump sum etc) and since April 2005, SIPPs are now available to anyone. Investors can put in a maximum of:
  • 100% of their Annual Salary or, if self employed, up to £215,000 tax free
  • Life-time limit of £1.5 million
Investment Property - SIPPs
From the 6th of April 2006, also known as A Day, changes in the UK Pensions regulations will come into effect, allowing the money in SIPPs to be used in purchase of any investment property, including your own home. However, it should also be noted that the property purchase will only be allowed on a property that will earn an income for the purchaser. This change to SIPPs will apply not only to investment property within the UK but also overseas properties which are purchased for the purpose of ‘Buy-to-Let’. 
Recent figures suggest that 60% of SIPPs savers are intending to take advantage of the change in legislation and use their SIPPs to purchase investment property. They may also be interested in benefiting from the change to the annual contribution allowance as A Day will also mean that SIPPs savers if employed will be able to make contributions of upto £215,000 per member regardless of earnings.
Benefits of Investment Property through SIPPs
The positive features of buying property through a SIPP are generally considered to be:
  • The rent charged on the investment property bought is received tax free by the pension scheme, enhancing the investor’s retirement fund
  • SIPPs can be used to pay all the legal expenses associated with buying the investment property
  • There is no capital gains tax levied on any eventual sale
  • The asset is able to augment in a largely tax-free environment
  • If the investor is forced to declare bankruptcy the property will not be classed as an asset
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