Skip Navigation Links

The use of SIPPs to buy property

This page is really only for people from the U.K. Some of the same principles apply in other countries but the detailed rules and the possibilities open to you will differ substantially from those available in the U.K.

What are SIPP's?

A SIPP is a 'Self Invested Personal Pension'. This is a special type of pension where, as the name suggests, the decisions has to how the funds should be invested are made by the person who is providing for his pension using the fund.

How does a SIPP work?

The detailed arrangements for setting up and managing a SIPP are beyond the scope of this guide. For more information see www.mwpensions.co.uk. MW Pensions have provided specialist SIPP advice to many of our clients over the last few years.

From the point of view of the person interest in investing in real estate (property), the important thing to understand is that - subject to certain restrictions - the investment can be made via your SIPP.

What are the restrictions?

A SIPP is an investment vehicle designed to provide a reliable and secure home for your money until and beyond your retirement. It is intended to be used for 'proper' investments and not for holiday homes, race horses, Ferraries etc pretending/strong> to be investments. The company that manages your SIPP is prohibited from accepting into it any investments that do not comply with the appropriate regulations.

When it comes to investments in real estate, more or less any type of investment in commercial real estate (shops, factories, bars etc.) are permitted. So are investments in most types of land.

Investments in residential real estate may be permitted subject to a number of limitations. By and large, your SIPP may not directly own a single residential property.

However, your SIPP may own residential property that is owned indirectly (for example, as part of the holdings of a property investment fund) or where you own a number of residential properties and the ownership is structured in the appropriate way.

Your SIPP may not permit you to use personally the property that it holds for investment purposes.

Why would you want to own property through your SIPP?

Your SIPP enjoys amazing tax breaks.

  • You will have received tax relief on the money that you have put into your SIPP. This means that, for example, you may have invested £60,000 out of your taxed income and another £40,000 might have been put into the fund by the tax man by way of tax relief granted to you.
  • Your SIPP will be free of all U.K. income and capital gains taxes on the profits made by and the growth in value of your investment. If the property is located overseas you will still be liable to any relevant overseas taxes but, using suitable structures, these can often either be mitigated or eliminated completely.
  • When you die, your SIPP will not be counted as part of your estate for the purposes of U.K. Inheritance Tax. The property may still be subject to tax in the country where the property is located but this can often be avoided by choosing to buy a property in a tax efficient country and/or by the choice of the right legal strucutre to own the property that you want to buy.

Investing in property via your SIPP can be very profitable

  • You choose the property to buy. You are not depending on the choices made by an investment fund. This means that there is no middle man taking a profit from the deal.
  • You are likely to choose with great care. Often with far greater care than the manager of an investment fund who has to source many properties each day. Choosing with great care means that (particularly if you take property investment advice - see our leaflet) you should buy a property with good growth and income potential at a very good price.
  • You can take a keen interest in the day to day management of the property and so make sure that you are maximising your rental income. Although, you cannot (subject to certain exceptions) use the property free of charge for your own holidays, you can make sure that your neighbours, family and friends use it on normal commerical terms so maximising the income from it.
  • You can choose when to sell the property. When you sell it you are free to reinvest the funds (via the SIPP) in any other category of investment permitted under the rules. This is almost anything. Stocks and shares, bonds, gold, currencies etc.

The cost of running a SIPP is very low

Both the initial cost of setting up the SIPP and the annual cost of maintaining it are very competitive.

Advice

If you would like advice about owning property through your SIPP and about the types of property that might work best for you in your personal circumstances, please contact us. Please note that we are not Independent Financial Advisors or Pension Advisors and so we will not be able to advise you as to whether you should set up a SIPP. If you wish us to do so, we may be able to introduce you to a suitably qualified specialist in this field. Our advice is limited to the vital real estate aspects of the use of your SIPP and the choice of property to put into it.

Next steps

Please look at the Legal Guides, videos, MP3 seminars and other materials set out to the right of this page.

If you would like us to help you, please complete our Client Pack and send it back to us. We will contact you to clarify your requirements and then introduce you to the person most appropriate to deal with your case.

If you do not find the information that you need, please send us an email explaining your problem and we will contact you.

© The International Law Partnership Ltd. Page last revised 8th February 2010.

P  Please think of the environment. Do you need to print this page?