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Sipp providers in cost warning on overseas property

Residential property in Sipps after A-Day faces legal and admin problems that will make it an expensive asset class to run, warn pension experts.

Sipp providers are working to ensure that their systems and professional connections are robust enough to deal with the anticipated demand next year and are predicting an increase in the end cost to consumers.

Winterthur Life head of pension strategy Mike Morrison says foreign buy-to-let properties or second homes abroad face complexity over language, currency risk and different tax and property laws.

For example, he says France does not recognise UK trust law and the inheritance tax treatment of properties varies massively from country to country.

Providers are also concerned at the lack of awareness among consumers that as pension trustees they will own the property and so potentially any home improvements will have to be accepted by the trustees.

PPML technical development manager Robert Graves says home “improvements” that typically reduce a house’s value such as stone cladding could therefore be vetoed by trustees.

Similarly, on BTL properties, Graves says any development of the property will have to be supported by a solid business case.

Graves says PPML is res-earching the most popular foreign residence locations – Spain, France, Portugal and the US – so it can offer these services by A-Day but more up and coming markets are likely to be dealt with on a caseby-case basis.

Morrison says: “Buyers have to be aware that local IHT law applies and foreign property will have higher acqui-sition costs.”

Graves says: “We are looking at the most popular foreign markets but there are a number of countries that do not accept trusts and there are a lot of additional considerations when buying overseas.”

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