SIPP for rental property?

Brie

It's been a few years since I had anything to do with SIPPs so am just looking for a bit of clarity on what's currently possible.

I'm anticipating (yes I know...) a substantial amount of inheritance in the next couple of years.  Once I clear our tiny mortgage and other bills I want to ensure the rest is safely invested to get some income.  I didn't know if  a SIPP would be a good location for a property (house? flat?) that would generate income for our retirement.  My initial thought is that any rental income would be reinvested in the SIPP until such time as draw-down is required.  Ultimately if the excess balance is depleted then the property could be sold and then draw-down could be done against that.

So first - can a SIPP hold a rental property?

And secondly - am I simply over-complicating things?  I'm assuming that a SIPP might be a good way to save tax but if the rental income is paid to my OH who is not working I guess this isn't an issue.

saucer

I may misunderstand what you mean but a SIPP is simply a way of investing or saving under a pension wrapper with associated tax advantages.  You can invest income from any source (including rental income profit that you will have had to declare in self assessment) in a SIPP which will then be subject to the usual SIPP withdrawal rules.  The money you invest in the SIPP will be grossed up for basic rate tax, with any higher rate tax being claimed through the self assessment.  I don't know what you mean about a SIPP holding a rental property?

dunstonh

 I didn't know if  a SIPP would be a good location for a property (house? flat?)

Residential property not allowed.

MX5huggy

You won’t get many BTL fans on this board, we’re into long term investment in unit funds of various types that match your goals and risk appetite. 

SomeMadeUpName

As above residential property is not allowed.  I did consider transferring a commercial property I own into  my SIPP but it looked like too much hassle to be worth it.  Advice from those on here reinforced that belief.  I do have one friend who has his investment property through his SIPP, but it is a substantial commercial prop and his biggest strife's are the trustees (being slow) and the LTA with the growth in value. 

If you do go down the BTL route then the current perceived best vehicle is a Ltd Co.  Profits from the Ltd Co could then maybe go direct to a SIPP if you wanted.  I have several domestic BTLs and would buy any more through an Co.

Marcon

Brie said:

And secondly - am I simply over-complicating things?  I'm assuming that a SIPP might be a good way to save tax but if the rental income is paid to my OH who is not working I guess this isn't an issue.

Probably! If your OH has no other taxable income, it's a bit hard to see why tax should be driving the decision to do something overly complicated (and it would need to be a commercial property - as pointed out above, SIPPs can't hold residential property) when there seems to be a much simpler solution.

Your OH could always pay into a pension and get tax relief even if a non-taxpayer. Maximum allowed (if there is no earned income) is £2880 net/£3600 gross, otherwise the higher of £3600 gross/earned income.

Brie

Thanks all for the responses - yes I'm over thinking it all.  In part I would want to find a way to ring fence the money (either the price of buying somewhere or the income it generates) so that it's not easily accessible.  I don't want it all to be frittered away on fast drink and cheap cars.   

Albermarle

don't want it all to be frittered away on fast drink and cheap cars.   

SomeMadeUpName

If your missus has no other incomes, then the income tax side is no great drama.  She wouldn't get to knock any mortgage payments of income anymore, but would get a 20% tax credit, and so long as the rent less (non finance) expenses are sub £50k then she will in effect pay no tax.  If she has other income (wages or pension incomes) then you need to knock those off the £50k.

If you have no mortgage attached to the BTL then the biggest advantage of Ltd Co goes away.  If you need a mortgage you have to balance the higher Ltd Co mortgage rates against the tax position of personally held.

The big issue I have (and you need to be aware of) is CGT after capital growth.  As personally held we will get hit in one (or several) big hits, if they were in a Ltd Co this could be spread over time as salary/divi/pension contribs to mitigate the tax and in particular the higher rate tax.

Brie

SomeMadeUpName said:

If your missus ....

My missus??  Oh dear him indoors will be upset....  ; )

Sorry - I do appreciate you answer even if an incorrect assumption was made.  The principles remain the same and it's always good to learn stuff.

SomeMadeUpName

@Brie, apologies, could have sworn your post said wife**, but reading again I see it's 'other half', so not an assumption per se, but more what they call unconscious bias (not quite bias, but you see what I mean). 

Works the same both ways though (the tax issue that is).


** so convinced in fact that I went back and checked.  As if maybe you could have mistakenly called your fella 'the wife'!