SIPPS and Overseas Property

mhuk

I read this recently on thisismoney.co.uk:

"SO HOW do you finance a SIPP property on one of these islands? For example, take this £150,000 newbuild three-bedroom villa for sale in Paphos, Cyprus.

To buy it through a SIPP pension requires the buyer to put down a deposit of £60,000 (to which the Government then adds £40,000 as tax relief). Other expenses (such as solicitor's fees) would add up to about £5,850. Include the tax-free cost of a mortgage over 25 years (£60,000) to pay the balance and the £150,000 villa will really cost £125,850. "

What are the mechanics of this? Do you take out a mortgage (the £60k in this example) and put the money into the SIPP, and repay the mortgage as a normal mortgage? Can any SIPP be used in this way? Or have I got it wrong?

Are there any website links that give a clear "This is how you do it" practical guide?

Thanks,

Mark

p.s. can I also transfer in other pensions that I have?

Phonix

I don't understand the governments timing with this.

Surely this is the worst time to buy property in the UK with SIPP so why allow it?

Much better investment to buy overseas.

monkeydust_2

I am 26 an considering purchasing a property abroad - should I be looking at a SIPP - from what I understand all my earnings would have to go back into the SIPP right and I wouldnt NOT be able to see anything until I retire. In which case its a bit useless for my needs but I am wondering if there is a way around this?

mhuk

Monkeydust- I'll post some links when I'm at work tomorrow, might be of interest?

localshop

Anything to stop you living in your SIPP?

dunstonh

from what I understand all my earnings would have to go back into the SIPP right and I wouldnt NOT be able to see anything until I retire. In which case its a bit useless for my needs but I am wondering if there is a way around this?

You would also never own the property or possibly even have access to it as you would not be the landlord. The pension trustees own it. I posted expected charges on another sipp thread a couple of days ago. I would check the other recent sipp threads for more info.

isasmurf

localshop wrote:

Anything to stop you living in your SIPP?

I presume you mean living in the property in your SIPP. No, but if you do you have to pay your SIPP rent at the market rate, or alternatively 40% of the market rate rental value to the taxman.

localshop

isasmurf wrote:

I presume you mean living in the property in your SIPP. No, but if you do you have to pay your SIPP rent at the market rate, or alternatively 40% of the market rate rental value to the taxman.

So pay yourself rent at the market rate - might work. I realise it is not straight into the pocket but its not a the rent is hardly gone forever when paid as rent
.

mhuk

Can anyone answer my orginal question?

Monkeydust:

http://news.bbc.co.uk/1/hi/business/4626727.stm
http://www.thisismoney.co.uk/retirement/article.html?in_article_id=404043&in_page_id=6
http://www.citywire.co.uk/Guides/SIPPS/Home.aspx
http://www.sipp-provider-group.org.uk/
http://www.propertysecrets.net/article/stay_awake_sipps_could_seriously_affect_your_property_investment_wealth/353.html
http://www.newskys.co.uk/property_news/sipps_2/1086/article.html
http://www.propertysecrets.net/categorybrowser/sipps_pensions/44.html

dunstonh

So pay yourself rent at the market rate - might work. I realise it is not straight into the pocket but its not a the rent is hardly gone forever when paid as rent

You will also cease to own the property and will become a tenant. You will not be able to carry out any maintainence on the property without getting trustess approval first (another bill) and you will have to use approved workman (higher bill).

If you were to die, your family would have to have the funds available to buy the property from the pension trustees at full market value.

EdInvestor

So pay yourself rent at the market rate - might work. I realise it is not straight into the pocket but its not a the rent is hardly gone forever when paid as rent.

This is the basis on which property in SIPPs works now.Currently you are alowed to put commercial property in your SIPP (not residential.) So a doctor or a dentist can set up a SIPP, and buy the building in which he has his surgery - paying rent to the SIPP for the office. Then when he retires the SIPP can rent the office out to another dentist, and the rental income is then paid out to the first dentist as his pension.

So if you think you are going to be paying rent anyway - on a holiday home perhaps? - then the SIPP idea can make sense.But unless you want to go into the holiday let business as a landlord , you'll probably have to sell the property when you retire so as to have money to pay your pension. You can never access the capital of course and you might not want to go to the same place on hols every year for 30 years just so as to pay off your SIPP's mortgage. .

You will not be able to carry out any maintainence on the property without getting trustess approval first (another bill) and you will have to use approved workman (higher bill).

This is a possibility and choice of SIPP provider needs to be made with a very close eye indeed to future costs.

If you were to die, your family would have to have the funds available to buy the property from the pension trustees at full market value.

Surely not? Wouldn't the fund be returned to the family in full on death, like any pension? I'd have thought one of those "in specie" transfers would probably do the trick if the beneficiaries happened to be living in the house at the time.

But the whole thing is fiendishly complicated and the possibility of major c*ck-ups and confusion looks very high - for some people it's almost certain to end in tears.:(