Property SIPP: The Tax-Efficient Method of Investing in Property in the UK & Abroad

What is a SIPP?

A Self Invested Personal Pension (SIPP) is a scheme designed to give you greater control over how your pension fund is invested. Currently, you can choose from a wide range of investment options, including shares, government and corporate bonds, unit and investment trusts and commercial land and property. This allows you to spread your risk and be more in control of how your future finances.

Who is eligible?

Anyone who is either currently earning or who can transfer funds from an existing pension arrangement is eligible. An independent financial advisor will be able to accurately assess your situation and tell you whether a SIPP is right for you.

How do I purchase a property?

Use existing funds which at the moment may be tied up until you retire
Mortgage of up to 50% of pension fund
Company and/or individual pension contributions
AVC's

Annual contributions can be up to:

100% of earnings, if self employed, up to £215,000 tax free
£215,000 company contributions regardless of earnings, if employed, per member. For example, husband and wife, if directors of own Ltd company, can contribute £215,000 tax free each.

What are the benefits of using a SIPP?

Rental income free of UK income tax - paid gross
Fund grows free of UK tax
No UK capital gains on disposal of property
Outside of estate - free of inheritance tax
Contributions into plan qualify for corporation tax relief or personal tax relief at marginal rate i.e. Up to 40%

How can I benefit from personal tax relief if a lump sum is invested?

You may invest, subject to maximum funding, and receive tax relief. For example:

22% tax reduction (40% if you are higher rate taxpayer) when purchasing an overseas property for your fund: that means that a property costing £105,000 can be purchased for as little as £63,000 .

Do I pay stamp duty and local taxes using the SIPP?

Yes, it is the same as if you had bought it personally, but it is paid out of your pension fund, along with other associated costs such as professional fees and maintenance.

Who will own the property in the SIPP?

It is owned by the trustees, who hold it for your benefit, but you remain the beneficial owner(s) under the rules of the SIPP.

Can I club together to buy property with others?

Yes - see previous comment about contributions. This is called Syndication, so for example with:

Spouse
Partners
Friends
Family
Unconnected parties

The Family SIPP?

No minimum age restrictions
Can include family and/or circle of friends

In many cases this will form an essential part of IHT planning for UK and Worldwide assets.

Is it possible to form a Syndicate to buy property of higher value, or more than one property?

Yes, you can club together and it is possible to borrow up to 50% of each individual fund as well.

Negatives

It is a pension and you cannot draw benefits until you are 50 under current rules and it is not a liquid asset
Personal use could create an income tax liability unless you pay a market rent to your SIPP
You cannot "trade" properties

How do we pull all this together?

Understanding the new legislation to take full advantage of this exciting opportunity is no simple task. So we have created a network of specialist advisers covering: