SIPP and overseas commercial property in Brazil?

jamphi24

Hi,
I am close to retirement and do not have a pension.

I am close to buying a small Hotel in Brazil for my retirement. My question is could I buy this through my SIPP?

I am a 50pc tax payer and from what I read I can claim back up to 3 years plus this years £50k allowance. So from what I understand I could claim back £200k.

For this. And based on being 50pc taxpayer if I purchased the hotel through my pension for £400k it would in effect cost me £200k of cash. Is this correct?

Am I able to use a SIPP to buy a hotel and is it ok its in Brazil?

Thanks for help.

thenudeone

You can only claim tax relief up to your income in the current tax year, up to a maximum of £50k.

The ability to carry forward unused allowance from previous tax years was abolished many years ago (when the annual allowances were a much smaller part of your income such as 15 or 20% depending on age).

If your income exceeds £50k but you paid less than £50k in contributions in previous years you can use up an of the £50k limit which was unused in those years, but the total must still be within the current year's income.

So even if you paid NIL contributions in the last three years, and your income this year is £75k; you can only claim tax relief on £75k of contributions this year.

The "years" which the £50k limit relates to are not always the same as the tax years.

Have a look here http://www.hmrc.gov.uk/incometax/relief-pension.htm#4

You can transfer any other authorised pension fund into a SIPP if you wanted the SIPP to have more funds. A SIPP can also borrow money, so a £300k hotel could be bought with £200k of cash in the SIPP plus a £100k mortgage secured on the property.

Whether or not its a good idea to invest probably a large proportion of the funds for your retirement in a single property in a far away country is a separate debate.

mania112

thenudeone wrote: »

You can only claim tax relief up to your income in the current tax year, up to a maximum of £50k.

The ability to carry forward unused allowance from previous tax years was abolished many years ago (when the annual allowances were a much smaller part of your income such as 15 or 20% depending on age).

If your income exceeds £50k but you paid less than £50k in contributions in previous years you can use up an of the £50k limit which was unused in those years, but the total must still be within the current year's income.

So even if you paid NIL contributions in the last three years, and your income this year is £75k; you can only claim tax relief on £75k of contributions this year.

The "years" which the £50k limit relates to are not always the same as the tax years.

Have a look here http://www.hmrc.gov.uk/incometax/relief-pension.htm#4

You can transfer any other authorised pension fund into a SIPP if you wanted the SIPP to have more funds. A SIPP can also borrow money, so a £300k hotel could be bought with £200k of cash in the SIPP plus a £100k mortgage secured on the property.

Whether or not its a good idea to invest probably a large proportion of the funds for your retirement in a single property in a far away country is a separate debate.

Carry forward does exist - it came back when annual allowance was reduced from £255k to £50k. Plans are for annual allowance to reduce to £40k in 2014/15.

So if you haven't contributed yet this year or for the past 3 (and you have had a registered pension scheme all that time) you can add £200k today.

Besides all that, it would be INCREDIBLY foolish to buy a Brazilian hotel with your SIPP.

PLEASE DO NOT CONSIDER IT.

atush

I agree, and in any case I am not sure rules allow 100% of pension pot in one commercial property?

jamphi24

mania112 wrote: »

Besides all that, it would be INCREDIBLY foolish to buy a Brazilian hotel with your SIPP.

PLEASE DO NOT CONSIDER IT.

Can you please advise why? Is this because its Brazil or because properties in SIPP are bad idea?

I have 10 years experience in Brazil, my wife is Brazilian and has run a hotel in the past. This is not an investment scheme we have seen. We have been looking at such properties for some time and know the area well, we are not like many of the investors blindly reading propaganda thrown around by agents promising amazing returns. This is a property and business we have found and will be buying just wondering whether they can actually be put in a SIPP in order to reduce the cost of buying.

Thanks for everyones help

mania112

I must confess, I skim read the post and saw 'Brazil, Property, SIPP' and alarm bells started ringing.

There are highly undesirable salesmen out there who try to convince pension-holders that moving their secure pension to unregulated, high-risk investments which have no historical evidence of a return, are a good idea (one of the 'popular' one's at the moment is a Brazilian property development).

Back to you though. The issue here isn't so much the risk (you seem to have enough cash to not be crippled by losing the SIPP altogether, you seem to know about Brazil and the way they handle business out there, you seem to have a solid plan), it's the fact that you can't take any personal benefits from this commercial property and there are very strict rules about living in a property you own through a SIPP - although I have seen people who own pubs and live upstairs.

The fact the commercial property is overseas might further be an issue.

I've not really been much help, Suffolk Life are regarded as the best SIPP provider for commercial property - if you told them your situation they would know immediately if what you're doing is permissible.

EDIT: And to confirm, putting 'all your eggs in one basket' and other warnings about this type of 'investment' don't apply to you (in my opinion) because you're using a SIPP as a way of gaining relief, rather than it being you life-long savings vehicle for retirement. The pension itself is a short term, means to an end.

jamesd

You can get tax relief on up to your earnings from employment in each year, subject to a cap of no more than £50,000 paid in, after tax relief. If your earnings are above £50,000 you can carry back three years so that up to £200,000 of earnings can be paid in and get tax relief. If you don't have that £200,000 of earnings you'll only be entitled to get tax relief on the earnings portion.

A SIPP can borrow up to 50% of its value so you'd actually need less than you expect, since you can take out a mortgage within the SIPP. But given the location you're likely to find it really hard to find a pension provider who will agree to this plan.

property.advert

Having researched overseas property holdings through a SIPP a couple of years ago, I think you'll be hard pushed to find a provider who will manage it for you, the SIPP that is, not the property, without their being spivs or wanting to charge multiples of thousands for each and every item they can.

I didn't find a decent honest one. If you do, please let me know.

mania112

Have a look at Lifetime SIPP - I've had experience with them taking on high-risk investment in the past (I'm not passing judgement on their service quality or cost).

jamphi24

Thanks for help. Will check things out. Maybe its a non goer but worth considering.

thenudeone

mania112 is wrong. jamesd is correct.

There are two separate allowances:
100% of this year's income
£50k per annum

The MAXIMUM you can get tax relief is the lower of:
- your income in this tax year
- £200k less what you contributed in the last 3 years (not necessarily tax years)

Any unused £50k limit can be carried forward BUT the contributions must still be within the current year's income.

You cannot carry forward unused income in order to pay more than you have earned this year.

http://www.hmrc.gov.uk/incometax/relief-pension.htm

Limits on tax relief
You can save as much as you like into any number and type of registered pension schemes and get tax relief on contributions of up to 100 per cent of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75. But the amount you save each year toward a pension from which you benefit from tax relief is subject to an 'annual allowance'. The annual allowance for the tax year 2012-13 is £50,000.