Buy to let sector set to reap fruits from changes in SIPPs rules |
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Wed, 20 Jul 2005 10:05
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Specialist Lender, UCB Home Loans expects good tidings for the buy-to-let sector, with a change in regulations in self-invested personal pensions (SIPPs) likely to be put into effect in April 2006.
As per new pension regulations, it will be legal for residential property to be a part of self-invested personal pensions (SIPPs) and this change is definite to prove to be a shot in the arm for the buy-to-let industry. In fact, UCB Home Loans is looking forward to a 15% enhancement in the sector.
In its report, UCB Home Loans has forecasted that with the provided boost, something around £3 billion to £5 billion can be seen being expended on buy-to let property for use in SIPPs after the implementation of the new rules on 6 April 2006, which is also being termed the A-Day. A-Day signifies the first time usage of residential property within self-invested personal pensions (SIPPs). Thereafter, it will be possible for property to be bought and placed against income tax, implying that a taxpayer liable for 40% tax will be paying only £120,000 for a £200,000 estate, while a 22% taxpayer will pay £156,000. In case the property is leased out, the income received as rent would be exempted from income tax and in the event of the property being sold later, the earnings from that sale would not be charged capital gains tax.
Other details pertaining to the alterations carried out on pensions are expected to be released by the government by the end of the year. Meanwhile, mortgage lenders in the buy-to-let sector lie in the waiting for more information so that they are able to develop more effective and lucrative products according to the reformed SIPPs.
UCB Home Loans managing director, Keith Astill explained, “Whilst the vast majority of buy-to-let lending will continue to be outside of SIPPS, we will be looking at ways in which products may be adapted to help customers take advantage of the new rules.” He also clarified that important decisions could not be made unless “fine details of the regulations” were elucidated, which again could take a few more months.
UCB reported about 100,000 people owning SIPPs at present, and according to industry analysts about 0.5 to 2.5 million people were expected to possess SIPPs by the year 2010 and a further addition to around 5 to 6 million people by 2020.
However, Astill does warn people to be cautious and avoid investing all their money solely in property. While acknowledging that “the new pensions rules are the biggest change over recent years within the pensions market, he also says that people ought to “spread their pension risks across a variety of areas, with property often accounting for 20% or less of the portfolio.”
Under the rules, individuals can pay 100% of their yearly salaries into the SIPP every year, till the limit of £215,000. Anything above the £1.5 million, which is the maximum volume the pension pot can hold, will be subject to taxation of about 55%.
Nevertheless, the flourishing of the buy-to-let will not affect property prices, since it is only a minor chunk of the entire housing industry. Yet, some deceleration in rental incomes might happen owing to an increase in the availability of leased properties in certain regions.
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