Anyone considering doing this?

frugal_dougal_3

Article from The Times regarding pension rule changes. Are people going to do it ?



The rule is for self-invested personal pensions (SIPPS). From April 6th next year, people will be able to include residential housing, including principal or second homes, plus buy-to-let housing, into their SIPP, where they had previously been limited to commercial property. Christine Seib runs the story in the Times, citing a survey by Hargreaves Lansdown.

Hargreaves Lansdown found that 37 per cent of its existing Sipps clients planned to buy a residential property with their pensions. If this percentage is extrapolated from the 140,000 people who own a Sipp, there would be more than 50,000 people willing to take advantage of the new rules.

The average Sipp property purchase is expected to be worth £195,000, which means that savers are likely to spend £10 billion on new properties, £8.5 billion of which would be spent in Britain — equivalent to about 5 per cent of the value of the UK property market.

This is a wall of money, and it may well be a considerable underestimate. If the wheels were coming off the Chancellor's economy (as the falling growth rate suggests), this could keep them turning a little longer by sustaining consumer demand. If there were to be an eventual collapse in the housing market, though, it could hit the value of people's pensions as well as their property assets. By then, of course, the Chancellor might have moved house himself, and it would be someone else's problem.

MattLG

Thanks for that link. Does anybody know if it's possible to convert a normal pension to one of these SIPP ones or would I have to start a new SIPP from scratch? I've never even heard of these SIPPs before.

If it was done as a buy to let scheme, would all the profit from the lettings be tied up till you retire or could you take the cash now?

MattLG

philipc_2

As far as I'm aware, as I've just been discussing this idea with a colleague, you can transfer existing personal pensions in to a SIPP. You may want to shop around and search on the internet to see who is offering the best deals.

GDB2222

MattLG wrote:

Thanks for that link. Does anybody know if it's possible to convert a normal pension to one of these SIPP ones or would I have to start a new SIPP from scratch? I've never even heard of these SIPPs before.

If it was done as a buy to let scheme, would all the profit from the lettings be tied up till you retire or could you take the cash now?

MattLG

It's all tied up until you retire - just like any other pension arrangement. The rules are changing so that you can start drawing your pension from age 50 even if still in work. 50 min age changes to 55 in 2010, though.

I am surprised that everyone is so keen on BTLs, still. I expect a much better return over the next few years from equities, ie company shares.

Celtic

When I first heard of sipps last year it seemed a good idea and away to finance propety that we own abroad .
However as with most ideas from this goverment anounced way before the small print is known they sound pants !
You can only use 50% of the value of your pension fund
The property becomes owned by the fund not you they decide how it is managed ,rent goes to the fund ,you pick up the bills.
It costs £356 to set up a sipp,£535 a year admin,and £580 for each property put in the fund .
Also legal fees ,stamp duty plus capital gains tax if you tranfer a property you already own .

The whole idea sounds rubbish now !

GDB2222

Celtic wrote:

When I first heard of sipps last year it seemed a good idea and away to finance propety that we own abroad .
However as with most ideas from this goverment anounced way before the small print is known they sound pants !
You can only use 50% of the value of your pension fund
The property becomes owned by the fund not you they decide how it is managed ,rent goes to the fund ,you pick up the bills.
It costs £356 to set up a sipp,£535 a year admin,and £580 for each property put in the fund .
Also legal fees ,stamp duty plus capital gains tax if you tranfer a property you already own .

The whole idea sounds rubbish now !

You can actually invest 100% of the value of your fund in property, plus borrow an extra 50%. So, if you have a £100k fund you can buy a £150k property.

However, you are absolutely right about the down-sides. There are costs involved in the structure of the pension fund. Also, SIPPs will probably require an independent property manager to be appointed.

Most important of all, you will need to pay your fund a full rent for personal use of the property or face a swingeing tax charge. The grey area is where you use a holiday property say 2 weeks a year and it is empty the remainder of the year. Do you pay rent just for the 2 weeks or for the whole year? Get it wrong and the tax consequences will be horrible.

gallygirl

Am I being really thick???? Am ambarrassed to ask....:o

Am I right in assuming that anything in a SIPP, including property, will 'die' with the pensioner? It seems pretty obvious, but I haven't seen it actually stated anywhere, but surely it's yet another thing to be taken into account?

GDB2222

ali007 wrote:

Am I being really thick???? Am ambarrassed to ask....:o

Am I right in assuming that anything in a SIPP, including property, will 'die' with the pensioner? It seems pretty obvious, but I haven't seen it actually stated anywhere, but surely it's yet another thing to be taken into account?

No, you are not being thick. The rules are complex and you are right to ask. The following is a simplified version of the position after April 2006:-

On death before age 75, whatever is left in the fund is paid to your heirs as a lump sum. It is free of tax if you have not started drawing pension or taxable at 35% if you have started drawing pension.

On death after 75, there is no lump sum payable, but a widow's pension is payable.

If there is still money in the fund after your widow dies, then this is 'surplus', and it depends on how the scheme is constituted how that is dealt with. In some cases can be used to provide a pension for your kids.

competitionscafe

Putting property into a SIPP was the subject of the most recent 'Inside Money' on BBC Radio 4. It will be repeated at 3pm today - you can also listen online or read the transcript online:

http://news.bbc.co.uk/1/hi/programmes/inside_money/4708593.stm

Pensions on the house?
Helen Visvikis
Helen wanted to know if a property pension would be good for her

BBC Radio 4's Inside Money 2005 will be broadcast on Saturday, 30 July at 1204 BST.

The programme will be repeated on Monday, 1 August, 2005 at 1502 BST.

A longer version of the programme will be broadcast on Monday

Britons have long been obsessed with bricks and mortar. But there is a revolution in store.

From April 2006 you will be able to buy residential property through your pension and get a generous tax break from the government to do it.

This shake-up has created a stir in the media. Some property companies are using the changes to lure new buyers.

And pensions providers have been inundated with queries from the public wanting to know how to get in on the action.

But amidst the hype, Inside Money asks who it is really suitable for, and what are the risks?

Listener Helen Visvikis joins presenter Lesley Curwen to see if this new property pension could work for her.
--