A new home for SIPP money
You may not be able to put a buy-to-let in your pension, but you can still invest in a collective scheme. The Chancellor may have reneged on his promise to allow buy-to-lets and holiday homes to be held in pensions, but residential-property funds are springing up to fill the gap.
The funds offer people the chance to invest their pensions in anything from run-down terraces in the north of England to prime flats in Belgravia – and even Budapest.
The Chancellor’s U-turn reversed an earlier decision to allow self-invested personal pensions (SIPPs) to buy individual residential properties from 6 April this year, which left many people disappointed.
Now fund managers are falling over themselves to launch residential-property funds, which, unlike direct property, are eligible for SIPPs.
The funds typically have a minimum investment of between £5,000 and £25,000, for which you get a share in a portfolio of properties. One advantage is that investors can diversify into residential property without pouring their entire pension into one property and exposing themselves to undue risk. The value of your investment can go down as well as up and you may not get back the full amount invested.Q&A: SIPPs and residential property
What is a SIPP?
A Self-Invested Personal Pension is a collection - or ‘wrapper’ - of pension products organised by an individual, which allows the management of a wide variety of investments for retirement.
What are the tax advantages of SIPPs?
SIPPs benefit from the same tax advantages as traditional pension schemes. All contributions up the permitted limits attract tax relief of between 22 and 40 per cent, dependent on earnings. At retirement, investors have the same options as they would with an ordinary pension: they can take a tax-free lump sum of 25 per cent of their fund.
What benefit do SIPPs have over
traditional pensions?
The principal advantage of a SIPP is that it offers more flexibility than a conventional pension scheme. SIPP holders can manage their own pension, choosing from a wide variety of different asset classes rather a small selection of managed funds.
What rules has the Government changed?
From 6 April 2006, the Government was going to allow individuals to invest 100 per cent of their income (up to a cap of £225,000 each year) in SIPPs and expand the number and type of assets eligible for the scheme – including residential property. The idea was to encourage people to invest for their retirement. But the Government then decided to limit the type of assets allowed so that people will no longer be able to place residential property, fine wines, classic cars, art or antiques in SIPPs after all.
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