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Property in SIPPS and loans

DavidLaGuardia
Posts: 603 Forumite
Can any bright spark please answer this?
What I understand:
1. From 04/2006 the maximum borrowing on a pension fund is 50% of the fund, so if you want to buy a £150,000 property you would have to have at least £100,000 in the fund. This is a sharp contrast with 75% loan to value at the moment
2. The "arms length" rule thingy is being removed meaning that it is possible for a pension fund to buy from the individual whose pension fund it is and other such transactions
Will this work?:
From 04/2006 suppose there is enough in a pension to put down a deposit of 25% of the property value. With the arms length rule gone, what is to stop a purchase going ahead where the individual says "I own 75% of the building and have 75% of costs and revenue but have to pay the mortgage on the 75% and the pension fund owns the other 25% and has 25% of income and revenue) . If the lender is happy with this, and I cannot see why not, then it is potentially better than a pension as 75% of the propery can be relaised as cash in the future (with another 6.25% from the pension bit). There might be a CGT issue of course, but still a potential winner.???
Will this work or have I missed something?
What I understand:
1. From 04/2006 the maximum borrowing on a pension fund is 50% of the fund, so if you want to buy a £150,000 property you would have to have at least £100,000 in the fund. This is a sharp contrast with 75% loan to value at the moment
2. The "arms length" rule thingy is being removed meaning that it is possible for a pension fund to buy from the individual whose pension fund it is and other such transactions
Will this work?:
From 04/2006 suppose there is enough in a pension to put down a deposit of 25% of the property value. With the arms length rule gone, what is to stop a purchase going ahead where the individual says "I own 75% of the building and have 75% of costs and revenue but have to pay the mortgage on the 75% and the pension fund owns the other 25% and has 25% of income and revenue) . If the lender is happy with this, and I cannot see why not, then it is potentially better than a pension as 75% of the propery can be relaised as cash in the future (with another 6.25% from the pension bit). There might be a CGT issue of course, but still a potential winner.???
Will this work or have I missed something?
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Comments
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Isn't 50% of £150,000 = £75,000, or have I missed something?
Would a mortgage lender be willing to lend in the joint names of both the pension scheme Trustee and the individual?0 -
Pal, 50% of £150K is indeed £75K. What the OP referred to was the borrowing power of the pension fund which is set at 50% (plus the value of the fund).
Few examples:
£40K fund can purchase £60K property
£80K buys £120K
£100K buys £150K
Stabilo :jBefore you buy Google Nest or British Gas Hive check out ESPproMon the Android and iOS Smartphone app that helps you build the same system from just £30.0 -
Pal wrote:Would a mortgage lender be willing to lend in the joint names of both the pension scheme Trustee and the individual?
As far as I know the lenders assess on the basis of
1. Loan to Value
2. Credit Score
3. (normally) Servicability i.e. ability to pay the interest payments
If they have first charge on the property then I can't think of what additional risk they would be taking. If two party want to buy a property between them it only requires on party to demonstrate they can service the mortgage.
I telephoned an expert today about this question and they seemed to think that the original question I ask was in the proposed rules, but until it gets the rubber stamp I guess anything can happen.0 -
Nice idea! Do update us if you find out the definitive answer.
I assume you're only talking about doing this with a second property, not the one you actually live in. While it is possible to sell your pension your own home, there are lots of potential problems: you have to pay your pension (market-value) rent; and you'll have to sell the property (potentially back to yourself of course) in order to by an annuity at 75 at the latest.0 -
Nick_C wrote:Nice idea! Do update us if you find out the definitive answer.
I assume you're only talking about doing this with a second property, not the one you actually live in. While it is possible to sell your pension your own home, there are lots of potential problems: you have to pay your pension (market-value) rent; and you'll have to sell the property (potentially back to yourself of course) in order to by an annuity at 75 at the latest.
I must confess I have no detailed knowledge of residential property in SIPP's but I do not see all the issues to be 'potential problems'.
1. Market value of rent payable to pension fund (or taxable benefit if rent free) - surely this just means you save on interest payments and pay the rent into your pension fund. Hardly a problem in my view.
2. Annuity at 75 - again I see no problem here, we all know exactly when we will be 75. By that age many people are looking for smaller properties anyway. For most people they will be able to choose at what point they sell their property (say after 70 onwards) to obtain the maximum return within the house price cycle.
Does anyone have the full pros & cons of residential property investment in SIPP's?
I am aware that https://www.taxcafe.co.uk sell an online guide for £19.95 but I am still hunting for the information for free (perhaps they will email me a free copy now that I have mentioned them).
StabiloBefore you buy Google Nest or British Gas Hive check out ESPproMon the Android and iOS Smartphone app that helps you build the same system from just £30.0 -
What you say is true - you'd save on the mortgage payments, and pay rent instead. But the rent would probably be greater than the mortgage payments. Yes, this money is going to your pension fund, but you're not getting tax relief on it.
It's also true that you know when you become 75. And the risk of the housing market crashing is, I guess, just like the risk of the stockmarket crashing. But: if you've put the house you live in into your pension, you'll have to sell it, and you'll only get 25% back as a lump sum. As long as you've worked all this out and you're still going to come out ahead, then that's fine, go for it.
I'm just saying they're potential problems - if you see an opportunity here, then great. It's all theoretical to me, the value of my pension would be lucky to buy a garden shed where I live, even if it borrowed 50%.0 -
Some questions on this Subject.
1. What do you do with Property in Pension on retirement.
2. If you can keep the Proprty in Pension Fund at 65,
can you use the Rent as the annuity.
3. What do you do with Property in Pension at 75,
assuming you can keep Proprty in Pension at 65.
4. If you already own a Property worth 50,000,
and you have 50,000 or more in Pension Funds but not cash,
can you lend your Pension Fund 50,000 and to transfrer the Property
to transfer to it and pay you the money when Pension Fund is sold.
5. Can you you Jointly own the House with your Pension Fund.
6. Can you Partially Transfer the House to your Pension Fund using this
years allowance and the rest using next yaers allowance and so on.0 -
What happens to Propery in SIPP if you die before 65,
between 65 and 75, after 75.
Does it go to Inheritance or in something else...0 -
1. What do you do with Property in Pension on retirement.
Sell it.2. If you can keep the Proprty in Pension Fund at 65,
can you use the Rent as the annuity.
No.3. What do you do with Property in Pension at 75,
assuming you can keep Proprty in Pension at 65.
Sell it.4. If you already own a Property worth 50,000,
and you have 50,000 or more in Pension Funds but not cash,
can you lend your Pension Fund 50,000 and to transfrer the Property
to transfer to it and pay you the money when Pension Fund is sold.
You cannot lend your pension fund money.5. Can you you Jointly own the House with your Pension Fund.
No6. Can you Partially Transfer the House to your Pension Fund using this
years allowance and the rest using next yaers allowance and so on.
NoWhat happens to Propery in SIPP if you die before 65,
between 65 and 75, after 75.
Before commencement - its sold
at commencement - its sold (although there may be potential with drawdown)
at 75, if not already commenced - its sold.
Whilst its in the pension, there is no liability to IHT.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Self-invested personal pension (Sipp) providers could find themselves liable for any health and safety breaches at residential properties after A-day, next April. For example, if a tenant dies as a result of a gas leak, then the SIPP owner will be criminally liable if there isn't a Corgi certificate.
Legally after A-day the trustees own the property. Health and safety regulations will be a key issue
It is already the case that for commercial property most SIPP trustees insist on an environmental survey.
There is also an issue that the trustee has a fiduciary duty of care to the member, and so may want to "vet" the BTL in terms of value for money and likelyhood of rental income.
In effect few SIPP trustees will be able to bear this risk without significant insurance costs so there are likely to end up being few providers.0
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