Self-invested pensions are set for a major boost after the pre-Budget report cleared the way for Sipps to invest in residential property.
The buy-to-let sector will also be buoyed by new Inland Revenue rules that will allow pension schemes to invest in all types of
investments, including residential property.
Under current rules, borrowing of 75 per cent of purchase price is allowed for commercial property. The new rules, which are planned to come into effect in April 2005, reduce the borrowing limit to 50 per cent but residential property, which is not presently eligible, will be allowed.
It will be left to pension trustees and scheme administrators to decide whether the investment is suitable for the scheme in question, although a pension benefit-in-kind charge will be levied where assets of the scheme are used by a related party.
Clearly Financial chief executive Mark Chilton says: “This move will create more demand for commercial property and push up prices. This is a good move because it puts residential and commercial property on a level playing field.”
Hornbuckle Mitchell Trustees managing director Mark Stubbs says:
“There will be a boom in residential property going into
self-invested pensions although the overall borrowing rules are not as generous as before, so people wanting to gear up their pension with commercial property should do it before April 2005.”