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Benny Jezereth

Residential Property Sipps

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I was just wondering if any of you had an opinion on this? The 40% tax break means higher tax bracket people can purchase a BTL property for their pension at 40% discount (for higher tax bracket) and receive the rent tax free in their pensions, also CGT on sales are dropped as well, this really is a big shake up of pensions. Seems like a win win situation for the middle class tax payer, for examle my FIL is considering buying for his pension and renting to us, we can then inherit later (there may be inheritance breaks also) and are able to bring our children up in a nicer house/area which we now could no way afford.

There is much info on RP sipps now and I have been looking into it, but am no expert so would like to hear your opinions on this?

I think it may trun out to be a bigger deal to the property market than a lot of HPC'ers would like to admit due to the tax incentives

Edited by Benny Jezereth

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:lol:

Please do a search for SIPPS. We have discussed this to the ends of the earth and then a little bit more (not that you would know that so im not 'blaiming' you for mentioning it again)

Webmaster please oh please can we have a main SIPPS thread pinned, it will keep comming up.

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I was just wondering if any of you had an opinion on this? The 40% tax break means higher tax bracket people can purchase a BTL property for their pension at 40% discount (for higher tax bracket) and receive the rent tax free in their pensions, also CGT on sales are dropped as well, this really is a big shake up of pensions. Seems like a win win situation for the middle class tax payer, for examle my FIL is considering buying for his pension and renting to us, we can then inherit later (there may be inheritance breaks also) and are able to bring our children up in a nicer house/area which we now could no way afford.

There is much info on RP sipps now and I have been looking into it, but am no expert so would like to hear your opinions on this?

I think it may trun out to be a bigger deal to the property market than a lot of HPC'ers would like to admit due to the tax incentives

Benny,

You also have to remember the Sipps rules (and your FIL's Sipps administrator etc) will require your FIL to charge you a "fair market rent" on the place.

So the only way you are going to be renting a property you could "no way afford" is if your FIL chooses to break the Sipps rules by renting it to you at a below market value... perhaps many people will do this sort of thing but it potentially opens him up to tax/pension problems (at the least) and maybe even fraud issues (at worst).

Your FIL should also bear in mind it is not "free money", any "subsidy" he gives you (if he gets away with it) is money he will not have invested for his pension (he could have bought shares or whatever with the same tax-free amount and had a bigger pension pot when he retires). Perhaps he is rich enough not to care about this "opportunity cost"?

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Seems like a win win situation for the middle class tax payer, for examle my FIL is considering buying for his pension and renting to us, we can then inherit later (there may be inheritance breaks also) and are able to bring our children up in a nicer house/area which we now could no way afford.

If your FIL is buying the property for his pension what will he retire on? I thought the property has to be sold when retires? How do you plan to inherit this house from him?

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Benny,

You also have to remember the Sipps rules (and your FIL's Sipps administrator etc) will require your FIL to charge you a "fair market rent" on the place.

So the only way you are going to be renting a property you could "no way afford" is if your FIL chooses to break the Sipps rules by renting it to you at a below market value... perhaps many people will do this sort of thing but it potentially opens him up to tax/pension problems (at the least)  and maybe even fraud issues (at worst).

Your FIL should also bear in mind it is not "free money", any "subsidy" he gives you (if he gets away with it) is money he will not have invested for his pension (he could have bought shares or whatever with the same tax-free amount and had a bigger pension pot when he retires). Perhaps he is rich enough not to care about this "opportunity cost"?

Thanks LL , i have the fair market rent issue at front of my mind , still trying to understand if my FIL could take fair market rent , then pass us back the difference (part i cant afford) as a regular gift , all above board ?

Yes would of course mean FIL pension returns are less than maybe could get in shares , or indeed BTL with tennant at arms length , but it allows him to help us , without the recent MEW for your kids approach.

All in all , it looks like the break we need if the market does stagnate , so am beginning to think it cant be dismissed (as it appears to be on most threads).

Thanks for links chuz , will be ploughing through them now.

Out of interest , does anyone know when the rules will be final , do we have to wait for budget 06 to have it clarified re the IHT issues etc.

benny j

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If your FIL is buying the property for his pension what will he retire on? I thought the property has to be sold when retires? How do you plan to inherit this house from him?

He'll retire on the rent that we pay him. I wasnt under impression it has to be sold at all , the rental income will provide a revenue stream throughout retirement.

If we were paying full market rent without gifts , this would be a fair retirement income without eating into capital wouldnt it?

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He'll retire on the rent that we pay him.  I wasnt under impression it has to be sold at all , the rental income will provide a revenue stream throughout retirement.

If we were paying full market rent without gifts , this would be a fair retirement income without eating into capital wouldnt it?

If your FIL buys this property with his SIPP he does not own the property, his SIPP fund manager owns the property. You will not be paying your father rent, you will be paying rent to the SIPP. Your father will not see the rent until he retires. When the SIPP matures, as far as I understand it (and correct me if I'm wrong) the property must be sold and converted into a kind of annuity which will pay him a lump sum and a regular income (determined on the value of the SIPP, including property and rental income) as would a conventional pension.

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If your FIL buys this property with his SIPP he does not own the property, his SIPP fund manager owns the property. You will not be paying your father rent, you will be paying rent to the SIPP. Your father will not see the rent until he retires. When the SIPP matures, as far as I understand it (and correct me if I'm wrong) the property must be sold and converted into a kind of annuity which will pay him a lump sum and a regular income (determined on the value of the SIPP, including property and rental income) as would a conventional pension.

You don't need an annuity now you can have an "alternatively secured pension". I don't however have a clue as to what that actually means.

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You don't need an annuity now you can have an "alternatively secured pension". I don't however have a clue as to what that actually means.

Google adds:-

However, in March 2005 the government confirmed that use of Alternatively Secured Pension may be reviewed as it is only intended to allow clients with religious objections an alternative to an annuity. It is not meant to allow tax avoidance.

so that seems to rule long term rent out of the occassion. Once he is 75 he is going to have to sell that home.

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If your FIL buys this property with his SIPP he does not own the property, his SIPP fund manager owns the property. You will not be paying your father rent, you will be paying rent to the SIPP. Your father will not see the rent until he retires. When the SIPP matures, as far as I understand it (and correct me if I'm wrong) the property must be sold and converted into a kind of annuity which will pay him a lump sum and a regular income (determined on the value of the SIPP, including property and rental income) as would a conventional pension.

"Here’s how the whole thing will work. From 6 April 2006, the existing eight sets of tax rules for different kinds of pension will be scrapped and replaced with a single set for occupational and private pensions. Of the many proposed changes, those likely to be of greatest interest, says Pamela Atherton in The Daily Telegraph, include the ability to hold residential, in addition to commercial, property in a Sipp (a self-invested personal pension); the potential to avoid compulsory annuity purchase at the age of 75; and the opportunities for inheritance tax (IHT) planning."

http://www.moneyweek.com/article/679/perso...sion-guide.html

I gather from what i have read that after apr 06 sipps can be withdrawn from at any time - you dont need to retire ?

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Thanks LL ,  i have the fair market rent issue at front of my mind , still trying to understand if my FIL could take fair market rent , then pass us back the difference (part i cant afford) as a regular gift , all above board ?

Yes would of course mean FIL pension returns are less than maybe could get in shares , or indeed BTL with tennant at arms length , but it allows him to help us , without the recent MEW for your kids approach.

All in all , it looks like the break we need if the market does stagnate , so am beginning to think it cant be dismissed (as it appears to be on most threads).

Thanks for links chuz , will be ploughing through them now.

Out of interest , does anyone know when the rules will be final , do we have to wait for budget 06 to have it clarified re the IHT issues etc.

benny j

Hi Benny,

Since you pay the money into your FIL's Sipp he cannot simply hand back part of this to you... it is locked up in his pension until he retires (this is what the changes are designed to do, to get people to lock up more money into their pensions, as people are not saving enough at the moment).

Your FIL can of course give you money to pay the rent that goes into his Sipp... but he will do this from his taxed earnings until he retires (as I understand it he will have paid 40% tax on this money).

If this is the case, he can do that today... subsidise your rent from his taxed earnings without the need for a Sipp. OK, you'd pay it back into his pension rather than to another landlord's pocket.

At present:

He pays £100 of his gross earnings directly into his pension (and the government doesn't take the £40 tax on these earnings), which is then invested for the future (in shares or whatever).

After April 2006:

He can take £100 of his gross earnings, give you £60 (after tax), which you then pay in rent back to his Sipp, which is then not subject to any income tax etc.

He has helped you rent the place... but at a 40% cost to his pension.

You might argue this 40% tax hit has been off-set by the tax breaks he will get on buying the property after 2006. But he COULD use essentially the same tax breaks to invest in something potentially more lucrative (he potentially gets hit twice - buying a less "growthy" investment to help you out and paying your rent from post-tax contributions).

I think Sipps will have an impact (positive) on the UK housing market, I just don't think it will be nearly as great as bulls seem to suggest.

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I gather from what i have read that after apr 06 sipps can be withdrawn from at any time - you dont need to retire ?

Yes, but the way I understand it is, he will be able to withdraw the value of the house but not the actual house. The house will still have to be sold to withdraw from the SIPP.

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On a more general note, it's a bit misleading to read headlines like " you can buy a house with 40% off". All pension contributions attract tax relief - I now draw an occupational pension, should I tell everyone that the taxman paid for 40% of my petrol this morning when I filled my car up? Or he's paying 40% of my holiday costs this year?

What's the difference?

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On a more general note, it's a bit misleading to read headlines like " you can buy a house with 40% off". All pension contributions attract tax relief - I now draw an occupational pension, should I tell everyone that the taxman paid for 40% of my petrol this morning when I filled my car up? Or he's paying 40% of my holiday costs this year?

What's the difference?

difference is.. holiday is cheaper than petrol :D

your right though its a sentiment winner, SIPPS IMHO will be p*ss in a pond,

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According to my financial guy, despite all that has been written about these, the reality is that nothing is yet cast in stone and that alot of new scenarios will come up before it begins next April.

IMPO it will be no different to the Tory con of getting millions of people to contract out of NI contributions back in the '80s - at first we will all be told how beneficial it is to us, and that we would be mugs not to go down this route, and then X years later we will be told what mugs we are for investing our pensions in property.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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