APRIL 2010 | www.opp.org.uk
SIPP sales | 55
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The simple SIPP checklist
Property developers and agents may sometimes pretend a property will be SIPP-compliant, when in reality it will not be. Reputable SIPP providers will refuse to take it but less reputable SIPP providers, eager for business, sometimes take properties that are not SIPP compliant.
Guy Tolhurst, Intelligent Partnership
What actually qualifi es as a SIPP
compliant investment is still a matter of debate for some in the industry. “A good SIPP administrator can guide agents and developers, but we have found the HMRC rules are open to varying opinion and the Revenue can be non-committal when it comes to a straight answer to a simple question,” says Agridhiotis.
When is a SIPP not a SIPP?
This lack of clarity makes it a lot easier for developers and SIPP providers to promote SIPP products that may not stand the test of time. “There are huge risks in some of the things being done with SIPPs at the moment,” said Stuart Law, chief executive of investment agent Assetz, which was one of the fi rst companies to market SIPP-compliant overseas property. “To put something that could be seen as residential into a SIPP could be horrifi cally tax negative. The question
is how do you defi ne a hotel room?” This question has not yet been fully
resolved by Her Majesty’s Revenue & Customs (HMRC) or the Financial Services Authority (FSA), although both are said to be reviewing not only what qualifi es for a SIPP but how it’s sold and how appropriate such investments are for pension portfolios. Tolhurst believes that, because of
the time that goes into qualifying a product for a SIPP, if a SIPP trustee accepts it then that should be good enough for any introducer, but admits this isn’t always the case. “Property developers and agents
may sometimes pretend a property will be SIPP-compliant, when in reality it will not be,” he says. “Reputable SIPP providers will refuse to take it but less reputable SIPP providers, eager for business, sometimes take properties that are not SIPP compliant; and HMRC may later impose a heavy tax charge.” One major area that is often
over-looked according to Prince is capital gains tax (CGT). “If a client purchases an overseas property via a SIPP they will have to pay CGT locally upon disposal and this could negate any benefi t of purchasing via the SIPP in the fi rst place,” she
If a client purchases an overseas property via a SIPP they will have to pay CGT locally upon disposal and this could negate any benefi t of purchasing via the SIPP in the fi rst place.
Pam Prince, Pure Cyprus Invest
explains. “IFAs and agents that are selling and recommending SIPP compliant property should ask this question so that the transaction is transparent. “We cannot profess to have a
method of negating CGT for our clients, as yet, but we do have a CGT guarantee that helps the client with the cost of any possible gain upon disposal. We also put every SIPP purchaser in touch with a local tax expert that will help them prepare their annual returns in the most effi cient manner.”
John Howell of John Howell & Co, a specialist in overseas property law, presents a simple guide for agents assessing whether product is truly SIPP compliant: First of all, it’s not residential (unless buying a portfolio of properties), it’s not for personal use, and not to be co-owned by family or other related parties. There are ways around these three issues, but the product then needs more clever design and is less simple. It must be a good investment that stacks up genuinely well as a real long-term investment for both income and capital growth (this is the one where most fall over as it’s not a way of offl oading junk). It should have high quality property management built in and a clear exit strategy. It shouldn’t require more than 33% borrowings and must have clear, professionally drafted documentation. There should be a link to an experienced SIPP manager used to dealing with overseas real estate, and come from a developer experienced in dealing with SIPP products. No special product is needed for purchase by a SIPP. Indeed, from the SIPP point of view, buying into a ‘SIPP development’ (sold exclusively to SIPPs) could be seen as a higher risk strategy. On the other hand, such projects are likely to have the essential quality property management arrangements. Based on the above, the warning signs to look out for are excessive commission, non-compliance with any of the above, property located in low quality areas, and vague, undocumented income potential.
SIPPs look set to account for a large
number of UK sales throughout 2010 and they could be a ticking time-bomb if not sold in the right way, Prince concludes. “It will take two to three years until
completion for most of the off -plan product that’s been sold, and buyers won’t sell for a few years, so a seven to ten year time-bomb seems a long way off ,” she says. “But it doesn’t matter how long it is because the IFA will still be responsible for their advice.”
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