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 Before the 2005 budget report the proposal was that from April 2006 investors would be able to buy residential property such as UK buy to lets and overseas property via a UK Self Invested Personal Pension (SIPP).
Implications for existing Buy to Let landlords
One of the most common questions we receive at the moment is “I
am an existing buy to let investor can I put my properties into
my pension plan/ Can I put my existing property into a buy to let pension.
This will no longer be possible as it will be a prohibited investment following the pre budget report. The only way it will now be possible to hold residential property such as buy to let property will be via a Real Estate Investment Trust or similar arrangement.
Once the funds are in your pension they will remain so although you can sell the trust and invest in other assets. The only way that money can be released from the fund is in the form of pension benefits.
“I am an existing buy to let investor but I do not have a
pension fund/ I only have a small pension fund. How can I get
the properties into a buy to let pension?”
This will no longer be possible the only way that you could hold Residential property is via a Real Estate Investment Trust or similar arrangement.
The government encourage people to contribute in to a pension
plan by offering tax relief on payments made into the plan. UK
taxpayers who contribute to their pension schemes in order to
buy such property will qualify for tax relief at the basic rate
of 22% on each contribution made i.e. the UK government will
increase each contribution of £78 by £22 bringing the total
invested to £100. Higher rate taxpayers can qualify for the
additional 18% through their tax return.
Individuals will receive tax relief on their own payments up to
a maximum of 100% of earnings (£215,000) or £3,600. So if you
are in a position to make large contributions it will not be
long before you have built a fund that is large enough to
purchase a large amount of buy to let property via a Real Estate Investment Trust.
In addition to this UK pension funds will also be able to borrow up to 50% of their existing fund value to buy Real Estate Investment Trusts that hold residential buy to let property. Therefore if you had a fund of £100,000 you would be able to borrow an additional £50,000 with which to purchase a buy to let via a REIT. Once inside the pension fund such property will therefore be free from both tax on the rental income and the capital gains.
If you would like to be kept up to date with plans for these new SIPP pension arrangements and lending terms when they become available please click on the following link
Pension Buy to Let
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