A-Day to trigger surge in buy-to-let homes through SIPP |
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Sat, 01 Oct 2005 13:05
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If you’re anxious about how to secure a comfortable lifestyle during your retirement years, just talk to a mortgage broker. The only things mortgage brokers are discussing these days are the benefits of owning buy-to-let properties and putting them into self-invested personal pensions (SIPP).
In less than six months, the government will provide an attractive investment option for those looking to put away money for retirement. On April 6th (A-Day) the government will announce changes to the SIPP schemes allowing UK residents to invest in residential properties as part of their pension plan. Currently SIPP allowed one to invest only in commercial property.
Besides the immediate benefit of securing a tax break of up to 40 percent, one also has the option to invest in buy-to-let properties overseas. Pensions advisors and mortgage brokers are the best barometers for the interest in SIPP. Even people who have been wary of pension schemes are now looking at SIPP with renewed interest. What was once seen as a grey world of drab percentages and unattractive figures is now a hot conversation topic among middle class folks.
The gains from SIPP include tax exemption on rental income and when the property is sold, any profit will not attract capital gains tax.
However, despite the growing interest, most people are underestimating the benefits of investing in a residential property through SIPP. People are not able to fully appreciate the exact gains and benefits. People presume 40 percent to be the amount they will be able to reclaim on such an investment. But a leading loan provider said the actual saving is a generous 51 percent. One feature of the SIPP is higher -rate taxpayers will get a bigger benefit.
An example: if a higher rate tax-payer buys a residential property worth £100,000, he would effectively pay only £49,000 because he first receives a refund of £23,000 and another £28,000 would be paid back into his SIPP fund. Standard rate (22%) tax payers would effectively pay £78,000 for the same property.
People tend to miscalculate because Revenue and Customs will gross up the size of the pensions contributions before calculating the pensions. And if you’re over 50’s it’s even more generous for you as you will be able to draw a cash lump sum from your pension fund to buy in more property should you so wish.
Property investment firms are understandably optimistic and expect a flood of investments in the region of up to £6 billion.
The scheme will allow investment overseas wherever SIPPs tax breaks are recognised, such as Mauritius, Malta and Cyprus which were once British colonies and now have a legal system similar to the UK’s.
The growing optimism has prompted property investment firms such as Assetz to already launch overseas property investment schemes in anticipation of the response to A-Day changes in SIPPs.
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