General (main property discussion here) - Putting your BTL in a Pension?

Next year the goverment will be allowing people to put BTL's into personal pension this should set the property market on fire, so be warned that prices could increase a lot more once this comes into affect.

Any questions on the above please leave here and ill try to answer them for you.

Alex M

Hi Alex

I assume you are talking about SIPPs? I'm very interested in how you think this will afect prices mate. How many pension holders are going to "have a stab" at the complicated life of being a landlord do you think? Also, will they invest directly, or through managed funds in your opinion? (Can you invest your pension indirectly through a fund / REIT?)

John

Hi guys

Do I have to buy a new house to put it in a pension? I already have an investment buy-to-let (that I used to own and live in) - should I put this in my pension (if I can)?

Many thanks

Bryan

Like your feedback there John, I think the housing market will rise again once people are aware of it. I also think that it may be mostly private landlords been advised by accountants to put there property in there pension as this is what most are buying for.

Alex M

Yeah, I'm not an expert in this field, but I'm reading what I can. From what I've heard I think it will have a positive effect at some levels of the market, but how positive is unclear.

If every tom, dick and harry piles in to the market, we could have further upward pressure on prices for sure. If it's just current landlords avoiding double tax (and inheritance tax at the moment - govt amendments to close this loophole pending I hear) maybe it will have no effect. Furthermore if it becomes more hassle to sell down/ churn properties within a SIPP, maybe activity will even decrease?

The jury's out for me! One aspect I think is worth highlighting - if I remember correctly, you can only invest up to 50% of your pension in a SIPP - hence it will be the cheaper end of the market which could receive a surge in demand. How many people have even £500k nestled away and are young enough to take on the risk / hassle?

So if joe public does join in, it'll be the sub £60k high yielders up in the North that benefit (which are my favourites anyway!).

cheers

John

Your right John dead right as your pension will have to fund the 25%, and how many people are going to have that in there pension unless there very high earners, and even then there be looking at the North of the country to make if a viable option, as a typical house price in london of say 225K means a deposit of 56K where as in the North your possibly looking at 60K with a deposit of 15K far more people will have this in there pension.

Nice feed back John, appreciated.

Alex M

p.s. have you put your name down for my free property software? if not let me know.

Agreed Alex.

Also, the risk profile of the pension contributors is very important. Those with bigger funds are most likely older anyway, hence less tolerent to long-term punts such as property (I don't want to sound too boring, but I'm of the firm belief you have to take a longer term view if investing in property, which 60 year olds can't do (unless they're thinking of their kids of course, and inheritance rules are still being worked out)).

I'm an Excel man when it comes to software, but I'll gladly take a look at your database (johngrigg4(at)hotmail dot com).

Bryan - sorry mate, good questions, but I don't know the answers to them! I "think" you'll be able to put current properties into a SIPP, but whether you kind of sell it to the SIPP and have to pay cap gains on what you've already made, I don't know.

cheers

John

Do you all think that it will be a big boost or maybe stop any decline in the market?

Also what is a SIPP?

That's what I'm not sure of Frank.

It should have at least a mildly positive effect on the market, but like we discussed, the type of property this will effect (in my calculations anyway) will be at the low end of the scale.

SIPP is "Self-Invested Personal Pension".

You have been able to invest commercial property in a SIPP before now, but residential is a new offering.

Best regards

John

Thanks John

also the residential is not exclusive to the UK - you can use this tax break / pension to invest overseas.

tom

Yes, but watch out for tax issues with the overseas - it's not necessarily as tax free as you may be liable locally. If your reason for using a SIPP was simply to access / manage the cash you've stored away, then no matter of course.

Will

Her's all the info I could find on this - I think it could well effect the lower end of the market but think it will take some time and some accountants who know what they are doing.

1. You'll be able to put up to 100% of your income into the new SIPP after April 2006 up to a maximum of £215,000. Based on point number 2 below this will only allow someone to purchase up to a value of £322,500 which will mean most Londoners will be looking to the north for their investment as you can’t get much for £322k in London anymore with the right yield.

2. The SIPP will be allowed to borrow only up to 50% of the value of its existing assets to buy property, so you are going to need quite a bit in your pension pot as cash before you can buy even a small property, or become a serious player in the pension property investment market. So to buy a property worth £150,000 you'd need to have £100,000 in your pension pot. I think this is the major point. How many people will have sufficient in their pension to be able to buy a property? I can see the lower end of the market doing well from it though. To be able to buy a £50k northern terrace you will only need £33k in your pension.

3. You can sell existing property into your SIPP but on its sale a Capital Gains Tax liability will be triggered (unless it is your own home of course) and such a purchase is still subject to the 50% rule above.

4. Any property purchased by a SIPP is subject to one major condition and that is that the SIPP would have to receive the going market rental thereafter and this includes your home too (at the moment); for example, a holiday home would (at the moment) have to be 100% occupied otherwise you'd have to find the rental balance not achieved by the SIPP from your own pocket.

5. Rental income must pass into the SIPP and remain therein - it is tax free of course - so it not available to you until you take your pension... but is is available from within the SIPP to accumulate and be used for deposits for further purchases.

6. You can buy property abroad but a SIPP will not avoid taxes appropriate to the purchase, running and sale of such in the country concerned - it'll just protect you from UK taxation.

7. Any subsequent property sales from within the SIPP will be free of CGT.

Hope this is of use

Russell

Alex, anyone in the know,

I have a question...

Are the deposits made to purchase a property for this purpose tax deductable ? (i.e. can I claim back tax on my 15% deposit ?)

Cheers,

FM

From your other posts, I'm not sure it's your style Funky Me - I think it requires 50% deposit, so a lot of equity tied up.

If I understand it correctly the deposits are actually 66.66% (i.e 2/3). This however is tax free.

Russell

i heard 50% too but not sure on this one.

tom

25% depsoit which has to be funded from ones pension, that is why it may benefit them buying cheaper houses in the North of the country.

Alex M

The 50% is what you can borrow againt the value of your pension (see my post above).

Regards

Russell

sorry - understand it now.

thanks russell.

tom