The first problem is a legal one. Most Sipps are established under trust, with the trustees being the legal owners of the assets. However, most foreign countries do not recognise trusts as a valid legal structure, even although their origins date back 700 years to the time of the Crusades.An international legal convention on trust recognition, drawn up in 1985, was supposed to rectify the problem but participation is voluntary. So far, the only European countries that have signed up are Italy, Malta, the Netherlands and Luxemburg. Among a few others, the legal systems of the Republic of Ireland, Australia and Turkey already recognise trusts. For those countries that do not recognise trusts, including France and Spain, the problem of legal ownership is not insurmountable. The solution involves holding the property in a limited company – a legal structure that most countries do recognise. The Sipp owns the shares of the limited company. For tax reasons, in many cases, a second limited company is put in place between the Sipp and the property. Every property needs its own holding company (or two), with each company having to file annual accounts with the local equivalent of Companies House. This ownership structure will add significant extra costs to holding overseas property within a Sipp. Another problem is local taxes. Normally, assets held within a pension grow tax-free. In most cases, the reciprocal tax treaties between the UK and other countries allow UK pensions to receive income and gains on foreign shares and government bonds tax-free. However, none of these treaties, except the one between the UK and the Republic of Ireland, exempts taxes on overseas residential property. Take Spain as an example, where local purchase taxes cost around 10 per cent of the property purchase price. In addition, non-residents pay 35 per cent tax on property rental income and capital gains. Estate beneficiaries are liable to inheritance tax at rates up to 50 per cent based on the value of the property at death. And just for good measure, there are also local property and wealth taxes. Sipps cannot reclaim any of these local Spanish taxes. On the other hand, when using a Sipp to buy UK residential property, the only tax payable is stamp duty. This makes UK residential property a more attractive proposition for would-be Sipp property owners. There is also the issue of whether or not overseas property is a good investment.The way property prices have been increasing here and on the Continent might lead some clients to believe that houses are a one-way bet. Yet, in many countries, property prices have increased because of falling inter- est rates – a phenomenon unlikely to be repeated, given the limited scope for further falls. UK residential property has produced excellent returns, comparable with shares, over the last 25 or so years. However, like any investment, timing the purchase correctly is vital. And past performance is not a guide to future performance. Looking at some of the adverts, it is little wonder that the Treasury is now consulting on regulating Sipps. Within 18 months, regulation will ensure that advertising is more balanced and that clients are aware of the risks before they sign up. In the meantime, the cost and complexity of making this work will keep most providers out of the market. Those providers that do play will need to behave impeccably, given that the spotlight will be shining directly on them.