63: Residential investment allowed in SIPPs after all (as long as it's via an "investment club")
PropertyInvesting.net would like to highlight a key finding from the small print of the A-Day legislation further to an article in the Weekend FT on 31st March. It seems property investors will after all be able to roll residential property into their pensions (self invested personal pensions or SIPPs) on the basis that:
- They group together with other people who are not related - in an "investment club"
- An investment of at least £1 million is made
- At least 3 properties are held in the "investment club"
- No single investor is allowed to own more than 10% of the equity of the "club" or portfolio - hence each club would have a minimum of 10 investors (e.g. each with 10% each)
Of huge significance for all those investors who like to stay leveraged up - is that - wait for it - normal lending criteria will apply. Hence, if a bank will to lend to the "investment club" for example 80% loan to value, then this would be allowed within the club SIPP (if interpretation of the legislation is correct).
As you can imagine, this could have a significant impact on demand for residential property - and should be broadly supportive of prices moving forwards. It remains to be seen how popular this scheme will be. It's likely been crafted to simulate residential investment in new housing, possible in view of the housing shortage. The precise dynamics this piece of legislation will cause will transpire in the next few years. PropertyInvesting.net believe it could in the short term increase housing shortages, albeit in the longer term it could improve supply, both to new build and rental accomodation.
If you are interested in hooking up with like minded investors - and developing a club, please contact us on firstname.lastname@example.org.
Refer to FT article below
By Sharlene Goff, Robert Budden and Charles Batchelor March 31 2006 FT.com
Investors who thought the government had stamped out any opportunity to hold residential property in their pension schemes may have a second chance under new rules proposed by the Treasury.
The small print of legislation published just days ahead of the launch of “A-day” on April 6, says that pension investors can include residential property in their self-invested personal pensions provided they club together with other individuals.
The move follows the spectacular U-turn by the chancellor last December, which banned any direct pension investment in residential property.
Property investment clubs are already gearing up for revived interest from individuals looking to join syndicates that will be eligible for pension investment.
Inside Track, the UK’s largest property investment club, said it was examining the new rules.
“We are looking at this. We do have people that would be interested [in investing via syndicated Sipps],” said Anthony McKay, chief operating officer. “We know of people who would like to take smaller stakes to flatten out the risks of investing in residential property.” Stuart Law, managing director of Assetz, the property investment group, said: “The floodgates could open and we could see a vast number of syndicates being set up, many by less scrupulous operators. The Financial Services Authority could have difficulty controlling this.”
The FSA is set to lay out new rules governing how it plans to regulate Sipps in the next few days. But the move to reinstate residential property as a valid pension investment could reignite concerns that a resurgence in buy-to-let interest could price more first-time buyers out of the market. Iain Oliver, head of pensions at Norwich Union, said: “We could see a fever building up again with consumers being encouraged to invest in residential property when it is not necessarily in their interest.”
But pension experts think the strict rules surrounding property syndicates will stop them being widely used by investors.
Although syndicated Sipps are not uncommon for groups of investors buying into commercial property, Sipps professionals say setting up these schemes is not straightforward. At least 10 Sipps investors would have to join forces to form a syndicate and combined would have to own at least three properties worth a minimum of £1m in total.
Investors looking to gain valuable tax breaks on their own homes or holiday homes will be disappointed as the rules prohibit any member of the syndicate from having personal use of the properties.
One pensions expert said the Treasury could clamp down hard if there was any sign of widespread investor interest. “The recent record of the Revenue and the Treasury is that they take fright very easily,” said Stewart Ritchie, pensions director at Scottish Equitable.