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Investing via SIPPS
For some people this is an excellent idea. There are restrictions on your ability to own residential property via a SIPP, but commercial property (including land, bars, offices and condo-hotels) can be bought through your SIPP and residential property can sometimes be bought in this way.
Investing via a Self Invested Personal Pension (SIPP) – UK Buyers ONLY
There are many attractions. As a pension contribution, the money you pay for the property is tax deductible – so the Inland Revenue, effectively, pays up to 40% of the price of your property. In addition, all income and capital gains generated by the property will be free of UK tax. Furthermore, the property (as part of your pension fund) will be outside the scope of UK inheritance tax. This is all very attractive.
On the other hand, the property will still be subject to taxes in the country where it is located (if there are any) and once you have put the money into your pension fund it has to remain there. You can withdraw 25% of the fund, free of tax, at age 50 (55 from 2010) but the rest is there to provide your pension. You can sell the house, but the money must remain in the fund. You can buy another property or some other investment with it – or you can keep the money in the fund in cash.
Please note that, if you wish to purchase a property through a SIPP, you first need to have the SIPP set up! This can take several months if it involves transferring funds from another pension fund. If you do not already have a SIPP set up – and so cannot buy in the name of a SIPP now – you may later be able to transfer the ownership of this property into your SIPP. To do so lawfully you can either enter into a subrogation of the rights and obligations under your purchase contract (where this is permitted by law with the permission of the developer) or agree to a cancellation of this contract and the preparation of a new one in the name of the SIPP. Both these options will have to have the consent of the Seller.
Both will involve you in some additional legal fees and expenses and, probably, in some additional tax liabilities in relation to the 'swap'. Please let me know if you wish me to negotiate a suitable clause in the contract. If you do not proceed down one or other of these paths then you would have to complete the purchase of the property and then sell the property to your SIPP. This, definitely, has significant tax and cost implications.
If you decide to buy through a SIPP it will be the SIPP Fund that will be our client, not you. All of our correspondence will be with them and our report on the property will be sent to them. Some SIPP investors wish to be kept up-to-date with what is happening in connection with the purchase and we are happy to provide this service. We will, however, charge an extra fee, calculated on the basis of the amount of time spent, if we do so. Because buying a property through a SIPP involves significantly more work than buying in the name of private individuals or an ordinary limited company our standard fees referred to in our documentation are increased in the case of a SIPP purchase to 2% of the price of the property, subject to a minimum of £3,000/€4,500. On top of these fees you may, depending upon the country in question, have to bear the cost of setting up a limited company to own the property on behalf of the SIPP Fund. The cost of this varies from country to country but will typically be about £1,500/€2,250. Also on top of our fees will be the various other items referred to elsewhere in our documentation. The good news is that, in the case of a purchase via a SIPP, the fee is usually paid by the SIPP Fund and not by you personally. It is therefore paid using money upon which you have received tax relief.
If you would like to find out more about this form of ownership, please ask.
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