Property SIPP Advice
Investment specialists are now advising that using your pension to purchase property could be a bad idea for most investors when changes to pension rules are introduced in 2006.
Property investment and pension specialists are now gearing up to cater for demand from savers, generating the spectre of another mis-selling scandal in the financial services sector.
From April 2005, Self Invested Personal Pension’s (SIPP) can be owned by anyone. Investors can put in a maximum of:
- their Annual Salary
- up to £215,000
- life-time limit of £1.5 million
With the money in your SIPP, you are also able to purchase residential property, which includes your own home.
According to industry figures, more than 6 out of 10 SIPP savers intend to use their funds to purchase property. After discovering that over a half of their customers are keen to put their investment property into a SIPP, buy to let dealer Paragon, and SIPP supplier James Hay have now united.
What is a SIPP ?
A SIPP is an investment means for holding pension assets and allows the investor to possess a wide range of investments, from unit trusts and investment trusts, to commercial investment property, insurance company funds and stocks and shares.
On the whole, SIPP’s are viewed as beneficial in that they allow the investor control of where to have their savings invested back to them. However, the shrewd investor should be wary not to use their SIPP for buying their main property.
Although from 2006 the typical investor will be able to borrow up to 50 per cent of the SIPP’s fund vale to purchase property, the shortcomings still outweigh the rewards.
The investor already avoids capital gains tax on any increase in the property’s value, and, if the dwelling is sold to a property SIPP, one has to pay a stamp duty.
Most important, once your home is placed into a SIPP, one no longer owns the property - it is owned by the pension fund. Furthermore, it will be administered by trustees of the SIPP provider (usually a bank or building society).
Essentially, this means the investor will lose control of their home and become a tenant, paying rent into the pension fund which is then used to pay one’s pension.
Without doubt, there are very few gains to be made from putting your main residence into a property SIPP.
Date: 09.06.05
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