Sipps

marylee

There was an article about SIPPS in the daily maill yesterday. It's about buying a second property and getting discount up to 50%. I did not quite understand it and would be grateful if somebody could explain how this will work out.

meanmachine_2

I think your best bet is to look on the pensions site.

SIPPS is a pensions wrapper, it's not a way for BTLers to buy property more easily.

You'd need a vast pension fund to buy even a cheap property.

It's a tax break for the superrich - if you fall into that category, then you should already beware of what SIPPS are, and no doubt the myriad other tax breaks out there.

Sorry, that doesn't really answer your question, does it?

deemy2004

marylee wrote:

There was an article about SIPPS in the daily maill yesterday. It's about buying a second property and getting discount up to 50%. I did not quite understand it and would be grateful if somebody could explain how this will work out.

Yep, upto 40% tax relief, 22% for standard rate tax payers.. Though note that rental income will be paid into the SIPP rather than your pocket.

Obvious benefits are the tax relief, no capital gains tax and no income tax deducted on the rental income paid into the SIPP.

Negatives are that if you buy your own house to live in you will have to pay rent on it, into the SIPP.

Though the problem is longerterm in that 75% of the capital would need to be used to buy an annuity... so is it worth it in the long run ?

But it definetly will get people shuving tens of thousands into SIPPs, which is precisely what the government wants to happen.!

Does it mean another propertry gold rush is about to start in April 2006 ? don't know - depends on the stockmarket, and the economy and offcourse the housing market.

meheraltaf

Sounds good,seems to generate much interest among people, but wonder wont the person on an average income get sucked into the risks of buying properties?

meanmachine_2

It depends on whether a person on "average income" has enough money in their pension plan to buy a property, then defer the rental income until retirement.

At least, that's my understanding of it.

again, it's not for mere mortals like you or I. It's a tax break for the wealthy.

And as far as I understand it, the amount you put into your SIPP depends on your tax bill. I think you need a tax bill of something like 40K to be able to put 100K into the pension plan, and even that will hardly buy you a garage these days.

It's all hype folks. Nothing to see here.

eurows

Reading your posts I can see how the SIPPS is going to be a big disappointment for most of you and the biggest mis selling scandel ever.

All you seem to read is the 40% discount bit. What about the bit where you have to have the money to buy a property, or the bit where you cannot touch the rental income.

dunstonh

biggest mis selling scandel ever.

It won't be as currently SIPPs are not regulated products so there is no comeback on the person selling them. So they will only have themselves to blame.

There never seems to be a mention of the potential negatives in these articles.

EdInvestor

The Treasury just put out a consultation paper with a view to regulating them from 2007. Respectable SIPP providers are quite happy to be regulated in fact -of course all the financial investments within them - shares, cash, funds etc are already regulated, so it's not really a major concern.

I find it a bit hard to get too concerned about misselling affecting rich higher rate taxpayers planning to make a killing out of putting second properties in a SIPP, personally.;)

dunstonh

I just read an article on the BBC website saying that and warning over the 1 year gap.

It also said

" ... fears were echoed by John Lawson, Pensions Manager from Standard Life. The insurer already has £1 bn invested in Sipps. "

That matches your comment about them having £1bill the other day. I really wish journalists would decide what the value is . In August, the press were saying

"The stand-out performance was from its self invested personal pension (SIPP) plan, which generated sales of £60m

£1 billion is correct but it just goes to show that the press cannot be relied upon to give you factual information.

Debt_Free_Chick

Remember, also, that in order to maximise the investment from property in a SIPP, the property needs to be let, so that the rental income boosts your pension fund (the rent goes into your SIPP).

Also remember, that your SIPP has to meet all the costs of owning, managing and maintaining a property investment.

These issues are quite separate to those of capital appreciation, which seems to be all folk notice with property investment. There is no cap appreciation, until you come to sell, and who knows what the selling price will yield?

Finally, remember that if you are relying on the SIPP to provide you with retirement income, you may need to release the capital in order to provide the income you require. This might mean that you are forced to sell a property when the market is depressed ... meaning, you could get less than you need and/or you may have to wait many months for the property to sell. Will you have other income during this period?

As with any asset class, property is not one basket for all your retirement eggs. Plan carefully .... diversify and be aware of all the pitfalls of each type of investment - don't just focus on the (perceived) advantages.