Buying a Property for Pension - To Do It or Not to Do It ?

isasmurf

If you buy a property abroad you will be subject to that countries taxation regime. Spain, in particular will tax you on income and Capital Gains. So although you will be getting tax relief at this end, you will be paying tax to the Spanish authorities wiping out most of the tax relief you get here.

dunstonh

but my interest was rekindled by the Newsnight article last night where a govt minister was claiming otherwise - saying its for all (though maybe not suggesting to the point of buying property). He denied it favoured the rich.

I saw that last night too and the interview was so bad it was unbelievable. The questions asked were daft and the responses inaccurate. For example, the minister said that only 200,000 had Sipps and therefore the potential for property purchase was limited to just them and therefore a minority of people. Or one of the questions was focused on the higher rate tax relief and how was it that Labour was changing the rules to make tax relief more favourable for higher rate tax payers.

When the interviewer knows nothing about the subject and the interviewee is responding with spin and inaccuracies, you only realise how bad it is when you know something about the subject. I didnt know whether to laugh or cry. My wife got a bit fed up with me remarking "wrong", "rubbish" or worse every few minutes.

isasmurf

EdInvestor wrote:

Next year you will be able to contribute an amount equal to your annual taxable salary capped at 215k into said pension fund.

You can contribute as much as you like into your pension fund from next year, only the first £215,000 or 100% of earnings (whichever is the lower)* will get tax relief, anything over will be taxed at 40%.

The maximum annual contribution attracting tax relief will be
Tax Year
2006/07 - £215,000
2007/08 - £225,000
2008/09 - £235,000
2009/10 - £245,000
2010/11 - £255,000

*Everyone can contribute up to £3,600 gross.

EdInvestor wrote:

BTW, there will be a "lifetime limit" on how much you can put in your pension and get tax relief from next year - the limit is something like 1.3m, going up to 1.8m, IIRC.

The Lifetime allowance will be
2006/07 - £1,500,000
2007/08 - £1,600,000
2008/09 - £1,650,000
2009/10 - £1,750,000
2010/11 - £1,800,000
(Trivial Commutation will be 1% of the above amounts)

Pal

dunstonh wrote:

When the interviewer knows nothing about the subject and the interviewee is responding with spin and inaccuracies, you only realise how bad it is when you know something about the subject. I didnt know whether to laugh or cry. My wife got a bit fed up with me remarking "wrong", "rubbish" or worse every few minutes.

Funny that. My wife was saying exactly the same when I reacted in exactly the same way. I really hate it when newnight tries to carry out interviews on subjects that they clearly don't understand. It was awful - a complete waste of television time.

Twopints

dunstonh wrote:

I saw that last night too and the interview was so bad it was unbelievable. The questions asked were daft and the responses inaccurate. For example, the minister said that only 200,000 had Sipps and therefore the potential for property purchase was limited to just them and therefore a minority of people. Or one of the questions was focused on the higher rate tax relief and how was it that Labour was changing the rules to make tax relief more favourable for higher rate tax payers.

When the interviewer knows nothing about the subject and the interviewee is responding with spin and inaccuracies, you only realise how bad it is when you know something about the subject. I didnt know whether to laugh or cry. My wife got a bit fed up with me remarking "wrong", "rubbish" or worse every few minutes.

I agree that the interview was rubbish but I thought the minister (?) was saying that 15 million people could already invest in property via their pension, and that this figure would "only" increase by 200,000 who would now be able to do so via SIPPS. Did I get it wrong again ?

EdInvestor

Contributors might like to read through this guide to SIPPS and the A-day changes from Citywire.

http://www.citywire.co.uk/Guides/SIPPS/Home.aspx

I thought it was pretty clearly written and comprehensible, a bit of a rarity on this area.

She doesn't cover the changes to protected rights but there don't seem to be errors, please point any out if you see them.

EdInvestor

Twopints wrote:

I agree that the interview was rubbish but I thought the minister (?) was saying that 15 million people could already invest in property via their pension, and that this figure would "only" increase by 200,000 who would now be able to do so via SIPPS. Did I get it wrong again ?

It's already possible for anyone to invest in commercial property (office blocks, shopping malls etc) via their pension, either in funds or by buying an actual building (the latter via a SIPP).

What the new rules allow is investment in residential property (houses and flats).

The two types of property are regarded as different "asset classes" - that is, if you want a "balanced" diversified portfolio to reduce risk, it's OK to include both, it's not putting all your eggs in the same basket.

BTW anyone who wants to buy a commercial property in a SIPP ( such as a doctor's surgery or a solitcitor's office) needs to move immediately as the borrowing rules will change next year greatly to their disadvantage.

Rickycowslip

whiteflag wrote:

...


There are ..................but I think you will have to pay someone to tell you!

he he yeah, but... there's little chance of me actually doing this. I'm just keen to explore the potential with people on this site. And of course this site is all about avoiding having to pay if at all possible isn't it...

My latest company scheme payment suggests if I retired today I'd get about £10k pa, assuming I was at retirement date. Looking at current annuity rates does that mean an equivilent fund would be around £300k ? - ie. you'd need £300k to buy an annuity giving £10k/yr. Can I then use this in a SIPP ? Seems a huge figure....

Thanks for all the replies btw - it is all getting a little clearer, but there still seems to be money to be made somewhere

Those replies that suggest the interviewer was talking rubbish - which bits exactly was he wrong on ? To me he just seemed to be repeating the accusations of the ex-Downing St advisor

EdInvestor

My latest company scheme payment suggests if I retired today I'd get about £10k pa, assuming I was at retirement date. Looking at current annuity rates does that mean an equivilent fund would be around £300k ? - ie. you'd need £300k to buy an annuity giving £10k/yr. Can I then use this in a SIPP ? Seems a huge figure....

More like 200k than 300k.Annuity rates are low, but it's not quite that bad.

http://www.thisismoney.co.uk/annuities

You can move ypur pension fund to a SIPP but how big it would be depends on several factors including what kind of company scheme you've got - final salary or money purchase.

mbamick

I received a magazine through the post today, and remembered this email string.

Portfolio magazine was launched earlier this year. It's a quarterly magazine that presents a range of news & features covering the main topics of interest to property investors. The Summer 2005 edition includes an article on the changes affecting SIPPs, why it pays to buy off-plan [rather than buying the house after it has been built] and why Spain still gets the nod from property investors.

You can register to receive a complimentary copy of Portfolio by subscribing online at Portfolio Magazine.

Enjoy!