Few new concepts in the property market have attracted more attention than the much anticipated ability to place property in a self-invested personal pension from April 6 next year.Although most people will find that the downside of putting overseas prop- erty in a Sipp will outweigh the benefits – and, in any case, few Sipp administra- tors are likely to offer this facility – there will nevertheless be some interesting ways in which people can use their Sipps to invest in residential property. It will be crucial for advisers and investors to investigate any options in detail before jumping in. One idea I think could be attractive is to use the new rules to help first-time buyers. With even average house prices well above what many first-time buyers can afford, there is a clear need to explore innovative methods of achieving home ownership. The new rules will make it possible for a parent to invest in a property via a Sipp as a co-owner with their adult child. The parent will get a good tax-efficient invest- ment while their child will get a home they can afford. The average amount invested in a Sipp is currently only about 40,000, so most people will not have enough to buy a property. But an option open to many parents could be for their Sipp to buy an equity share in their child’s first property, as this would require a much smaller investment. This would work on a similar basis to a shared-ownership scheme except that, instead of a housing association or the Government providing the funds for the equity share, the Sipp would fund it. The scheme I am propo- sing makes the purchase affordable because it effectively costs the parent nothing if they already have the funds in their Sipp. The child lives in the property rent-free while paying the mortgage on their share and maintain- ing the property. In lieu of rent, the Sipp is entitled to a bigger proportion of any capital gain when the property is sold or the child buys out the equity share. The amount of this split would be agreed between both parties from the start. Alternatively, a notional rent of not more than 3 per cent would be charged by the Sipp but deferred until the property was sold. Which of these options is more suitable depends on the risk profile of the parent and their child. The first strategy is higher risk for the parent and, as such, more suitable for those who are bullish on residential property prices in the long term. Charging a notional rent is safer as, even if the property value falls, the rent accruing each year will probably still produce a profit. The examples (left and right) illustrate the prin- ciples involved. Whichever method is adopted, HM Revenue & Customs will need to be satisfied that the Sipp investment is made on commercial terms. However, as the Government has stipulated that it expects the average rent charged by lenders which participate in the Homebuy scheme to be less than 3 per cent, it is difficult to see how HMRC could argue that 2.5 per cent is not a commercial rent. Even if the parent does not have sufficient funds in their Sipp or does not even have a Sipp, this scheme could still be an attractive option for helping their child to buy their first property. Indeed, there is no reason why it could not be used to help finance subsequent purchases.
Ex-Bankhall director of group business relations Arnold Laing has joined the board of broker-support.com. Laing believes that broker-support.com will serve as a complementary service to Bankhall. The web-based support service provider is based in Knutsford, Cheshire and was set up in October last year. It focuses on personal finance customers, saying most people do not […]
The Association of Consulting Actuaries’ 2005 Pension Trends Survey and the Government Actuary’s Department’s 2004 Occupational Pension Schemes Survey highlight significant changes in UK pension provision and the attitudes of employers in setting up and running schemes for employees.
As a DBS/Sesame member, I sold only a few NDF guaranteed income bonds in 2000/01. The products were on the DBS highly recommended panel. The risk rating of this product changed from cautious to highly risky and we as advisers are being sued for misselling. However, in a recent claim which went against me, Sesame […]
Standard Life Healthcare has bought the private medical insurance business of First Assist Insurance Services.
Nicolas Just, Head of Smart Beta at Seeyond, says the most important point to recognise about the Seeyond approach to investing is that it sees volatility as an asset class and, with its factor-plus products, it aims to build portfolios that will outperform an index over one year/achieve outperformance as frequently as it can.
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