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News: SIPPs to include residential property

In another extraordinary u-turn, the Chancellor is now proposing that SIPP holders can invest directly in student halls of residence and indirectly in other residential property within a syndicate of just eleven or more members, reports Assetz.

Last week, the details of the definition and tax treatment of residential property within SIPPs were divulged in Her Majesty’s Revenue & Customs (HMRC) Guidance Notes.  These are only draft documents at this stage but are expected to become law as part of the Finance Act in July 2006.

The documentation outlines the conditions under which SIPPs will be able to invest in residential property.  The key points are:

  • SIPPs can invest directly in dedicated student Halls of Residence but not individual flats that happen to be let to students
  • They can also invest directly in hotels, residential homes, hospices and prisons
  • They can invest in residential property so long as it is via a “genuinely diverse commercial vehicle”, or indirect investment. This includes UK REITs and Funds such as onshore Property Unit Trusts, as expected, but also residential syndicates of only 11 or more people.

The following limitations apply to indirect investments:

  • The SIPP must own no more than 10% of the property
  • The total asset value is at least £1 million, or at least 3 properties are held in it
  • Syndicate members cannot hold any more than 10%
  • No personal use of the residential property is permitted

Stuart Law, Managing Director of Assetz comments:  ”This is fantastic news for pension investors. The Government has been sensible in permitting residential property that is of a true investment nature, and allowing people to supplement their retirement income with the proceeds of buy to let and residential capital growth, as well as more traditional commercial property that was already allowed."

He continues: “The residential syndicates proposed would be able to borrow up to 85% of the value of the property, as the SIPP would own a share in the syndicate but the syndicate itself would borrow using non-recourse lending, enabling investors to bypass SIPP lending limitations of 33% of the value of the property.”

He added: “This opportunity will be extremely popular with investors who understand the benefits of gearing.”

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