Sipp Money

[Vivaldo]

How much SIPP money is waiting to go in to UK residential property? any estimates? I'm suspicious that all this SIPP stuff is just spin. Can SIPP money be invested in non-UK property?

[Vivaldo]

Surely someone like Spoon or ZZg has some info on this? I'm Beggin Ya!

[zzg113]

The estimates for the amount of money waiting to go into SIPPs vary wildly.

First, the average amount of money in the average pension AT RETIREMENT AGE:

This piece first appeared in The Daily Telegraph on 15 February 2003

The text here may not be identical to the published text

Chipping away at the prudent person's pension pot

Many savers may lose out with the new means-tested pension credit

From October men will need to save nearly £75,000 in their pension fund in order to take them above the Government’s new means-tested benefit, Pension Credit, which starts in October. Women will need even more – over £80,000 and a married man with a dependent wife will need at least £130,000. The average pension fund at retirement is just £25,000.

So there is not much in pensions currently (which can be rolled over into SIPPs).

The Treasury estimate that the cost of tax relief will be much less than £4bn.

http://news.ft.com/cms/s/651c31c4-d5fa-11d...000e2511c8.html

Lord Oakeshott, a Liberal Democrat Treasury spokesman, will no Monday write to Mr Brown warning him: "If you do not act to safeguard the tax base now, I fear current tax leakages will turn into a tidal wave next year."

The Treasury insisted: "The cost of tax relief will not be anything like £4bn."

But the government has admitted it is difficult to forecast the impact of the changes. Lord McIntosh, a former minister, told the Lords in January: "Any additional cost to the exchequer will depend on uncertain behavioural responses to these reforms - whether or not individuals who will be able to invest in a wider range of assets choose to invest more than they do now."

Lord Oakeshott said: "Translated into English, this means 'we haven't a clue'."

SIPPs are largely aimed at higher-rate taxpayers. So if tax relief will be less than £4bn (at 40%) then the total amount expected to go into SIPPs must be well under £10 billion (by the Treasury).

http://www.reuters.co.uk/newsArticle.jhtml...onalFinanceNews

Experts at Standard Life have calculated that this is likely to result in a loss to the Inland Revenue of some 4 billion pounds a year, equivalent to 1 percent on basic rate tax - at a time when Brown is already facing a black hole in government finances.

Lord Oakeshott, the Liberal Democrat Treasury spokesman, has warned the chancellor that if he doesn't act "to safeguard the tax base now, current tax leakages will turn into a tidal wave next year".

Barry Bolland of the Sipp Provider Group pointed out that despite Sipps being able to invest in the member's own home and foreign property - and other more esoteric investments - this is unlikely to be as widespread as is being suggested.

"The size of the UK property market is approximately 3,000 billion pounds and the size of all Sipp assets about 25 billion pounds," said Bolland. "So, if 25 percent of all Sipp money went into the housing market it would represent only about 0.002 percent of that market."

http://www.arla.co.uk/news/06062005.htm

http://www.telegraph.co.uk/money/main.jhtm...6/ixperson.html

Standard Life is to launch a major assault on the burgeoning £15 billion self-invested personal pension market with the launch of a new Sipp in December.

[kerplonk]

Also, does anyone know what happens to the property once you climb the stairway to heaven?

I assume it can't be inherited by your next-of-kin and passes to the pension company?

To me it this idea looks good on paper, but in reality the pros and cons of how much such an investment would pay out, doesn't look so good in reality.

So you'd get rent coming in from it if it was owned outright, but that rent would be taxed at 22% or perhaps at 40% depending on how much you've got tucked away.

At 40% that's the same level you'd get even if the property weren't in a pension, and then if you die, your next-of-kin would inherit it, not the property company.... OK so Gordon would take another 40% of it, but still, at least your kids would get 60% as opposed to zero.

Has anyone thought this through?

Is this how it works?

[Big_Al]

Also, does anyone know what happens to the property once you climb the stairway to heaven?

I assume it can't be inherited by your next-of-kin and passes to the pension company?

To me it this idea looks good on paper, but in reality the pros and cons of how much such an investment would pay out, doesn't look so good in reality.

So you'd get rent coming in from it if it was owned outright, but that rent would be taxed at 22% or perhaps at 40% depending on how much you've got tucked away.

At 40% that's the same level you'd get even if the property weren't in a pension, and then if you die, your next-of-kin would inherit it, not the property company.... OK so Gordon would take another 40% of it, but still, at least your kids would get 60% as opposed to zero.

Has anyone thought this through?

Is this how it works?

<{POST_SNAPBACK}>

kerplonk

1. Rules on death vary depending on when you die, however, in most cases the fund value gets paid to whoever you want it to (some caveats here but too boring to go into too much detail).

2. Rent is not taxable within the SIPP.

3. No capital gains tax on eventual sale of property.

4. Borrowing restrictions will probably limit the appeal of this initially to higher net worth clients, however, as pension funds get bigger this will become more popular.

5. Overseas property will be technically allowable, however, I suspect that few providers will offer this (a) because of language issues and ( because they tax treatment may not be beneficial.

6. Little point in putting your main residence into a SIPP as it has tax free growth anyway.

AL

[Marina]

I've got a SIPP.

I believe I will not be putting a depreciating asset into it anytime in the next 5 years.

[ILikeBigBoobs]

How much SIPP money is waiting to go in to UK residential property?

Between 10 to 12 Billion at this moment in time.

I probably willl be adding part of my SIPP to that pot too

Edited June 8, 2005 by ILikeBigBoobs

[Waiting Patiently]

This is from todays Daily Mail :

Sipp could leave you with a bitter taste

Liz Phillips, Daily Mail

8 June 2005

EXPERTS are warning that using your pension to buy property will be a bad idea for most investors when changes to pension rules come in next year.

Already, specialists in property investment and pensions are gearing up to cater for the demand from savers - raising the spectre of yet another mis-selling scandal in financial services.

From April, anyone can have a self-invested personal pension (Sipp) and can put in a maximum of their annual salary, up to £215,000, with a lifetime limit of £1.5m. And you will also be able to buy residential property, including your own home, with money in your Sipp.

Broker Sippdeal says that more than six out of ten Sipp savers are planning to use their fund to buy property, while buy-to-let lender Paragon and Sipp provider James Hay have joined forces after finding more than half of their customers are interested in putting their investment property into a Sipp.

A Sipp is simply a vehicle for holding your pension assets and allows you to have a wide variety of investments. Generally they are a good idea, as they hand control of where to invest your savings back to you, but beware of jumping on the property bandwagon.

Even though from next year you can borrow up to 50% of the fund's value to buy property, the drawbacks outweigh the advantages. Using your Sipp to buy your main property is a bad idea.

You already escape capital gains tax on any increase in its value, and if you sell your home to a Sipp you have to pay stamp duty.

Crucially, once you put your home into a Sipp you no longer own it - the pension fund does, and it is governed by trustees of the Sipp provider such as Standard Life, Legal & General or a bank.

The trustees are likely to be extremely strict about how your home is maintained and you will have to pay rent to stay in it, or be taxed on the benefit.

Tom McPhail, of independent financial adviser (IFA) Hargreaves Lansdown, which provides Sipps, says: 'You lose control of your own home and become a tenant again. And when you get to retirement, how are you going to draw an income?

'You're either going to have to sell, or if you don't you'll have to pay rent to the pension fund, which will be recycled to pay your pension. It looks hazardous without any real gain.'

You could buy a rental property or holiday home with your Sipp fund - if you can afford it. Say your fund is £50,000, you can only borrow up to half of it, so you'd only be able to buy a flat costing £75,000 in total, including all the buying costs.

Even if you have an existing buy-to-let property, your pension fund still has to be large enough to buy it from you.

From next April, you can contribute your entire annual salary, up to £215,000, to a fund - so you could make your investment property your contribution for the year if you earn enough, or you could split ownership between yourself and your Sipp. But this is complex, as questions will arise about who is responsible for managing it.

Gemma Watson, of IFA Chartwell, says: 'The main drawback is that you're putting all your eggs into one basket.

'Since you're likely to own your own home, having your entire pension fund invested in property means all your investments are skewed towards one type of investment - property. That's very risky. It's really only suitable for experienced investors with a big fund.'

There are tax advantages, as you'll be buying the investment property with untaxed income and any profit will be untaxed, but you will have to pay stamp duty and capital gains tax on the sale to the Sipp.

If you put a holiday home in the UK into your Sipp or use the funds to buy one, you will have to pay a commercial rent to your pension fund whenever you use it.

Robert Reid of IFA Syndaxi warns against rushing into overseas property, using your pension fund to buy it.

He says: 'Spain and Portugal don't recognise pension funds as trusts, so you'll still be taxed on the rental income and increase in value when you come to sell it. This will probably be the case with other countries too.

'It's a very complicated area once you include a property in your pension fund. You need to take expert advice.'

Investors were hoping that putting property into their pension fund meant they could pass it on to their family without paying inheritance tax, but Revenue & Customs is already drafting rules to make sure this cannot happen.

Daily Mail. Sipps

[Vivaldo]

MOLTO GRAZIE

[ILikeBigBoobs]

This is from todays Daily Mail :

Daily Mail. Sipps

<{POST_SNAPBACK}>

How to earn a small fortune - start with a large one and then follow The Mail's financial advice. Their advice is so often absolute and utter rubbish. Try the FT and you might get a sensible article.

[Time to raise the rents.]

IMHO there'll be more money to be made by holding current property investments & possibly buying more soon, then when the SIPP plan causes dramatic HPI as it will, sell out to SIPP investors in a few years from now & pocket a fortune.

Sounds nice? It's what the Builders are planning to do with their existing land banks for 2 bed flat developments I'm sure.

[London-loser]

So TTRTR, are you buying?

You should have bought last December... it was your best chance to get a bargain.

I'm intrigued as to why you so confidently state that Sipps WILL cause dramatic HPI?

Genuinely, I'm fascinated.

[CrashCrash]

IMHO there'll be more money to be made by holding current property investments & possibly buying more soon, then when the SIPP plan causes dramatic HPI as it will, sell out to SIPP investors in a few years from now & pocket a fortune.

Sounds nice? It's what the Builders are planning to do with their existing land banks for 2 bed flat developments I'm sure.

<{POST_SNAPBACK}>

By the time SIPP come into Residential property market, Properties will be in freefall. Only genious like TTRTT will buy then.

Now they are like Life Stock, will be Laughing stock soon

[Time to raise the rents.]

So TTRTR, are you buying?

You should have bought last December... it was your best chance to get a bargain.

I'm intrigued as to why you so confidently state that Sipps WILL cause dramatic HPI?

Genuinely, I'm fascinated.

<{POST_SNAPBACK}>

1/ Yes I am looking to buy & in Dec I was too busy planning my loft conversions to want to also be involved in a purchase at the same time. Unfortunately I am only 1 person (count me & my wife as 1 thanks).

2/ As shown the world over, when there's a tax giveaway or alternative large incentive, expect prices to adjust accordingly. Please don't bother arguing with that, that would be like saying HP's wouldn't go up after rates were dropped so low following 9/11 & the lead up to the war in Iraq. We all know what happened there.

BTW. I didn't see your question yesterday.

[London-loser]

1/ Yes I am looking to buy & in Dec I was too busy planning my loft conversions to want to also be involved in a purchase at the same time. Unfortunately I am only 1 person (count me & my wife as 1 thanks).

2/ As shown the world over, when there's a tax giveaway or alternative large incentive, expect prices to adjust accordingly. Please don't bother arguing with that, that would be like saying HP's wouldn't go up after rates were dropped so low following 9/11 & the lead up to the war in Iraq. We all know what happened there.

BTW. I didn't see your question yesterday.

<{POST_SNAPBACK}>

Hi TTRTR,

Thanks for your answer.

I would have thought that if December was the best time to buy you would have bought then and looked to do your loft conversions now? No matter, my guess is the market "got it all wrong" and has helped you to be able to get at least as good a deal this summer/winter as you would have got last winter (I'm confident I personally can get a far better deal today than I could have done last winter).

I'd agree that prices should adjust to the Sipps changes (when the facts change I change my mind etc).

But I just don't see the tax giveaway as the "large incentive" needed to push the market up significantly (as you state as FACT).

Don't get me wrong, it is an impressive tax break for the limited number of people able to take advantage (I think I banged on somewhere on this site about how amazed I am that a Labour government would make such a tax concession to the wealthy at the expense of the rest of society).

But it really isn't nearly big enough to have any dramatic impact on the overall market. Unless you want to point out the important details I have overlooked?