50 | RETIREMENT SIPPs
INVESTMENTS
new resort complex in Cape Verde called The Llana Beach Hotel right now because its Dunas Beach development is more or less sold out. “We have got 179 units left at
Dunas,” says King, “and we are selling them at 50 a month.” “They will all be gone by April.”
The new Llana Beach development is located halfway between The Resort Group’s two existing Cape Verde properties, The Tortuga and Dunas Beach Resorts. King too is worried about the
bandwagon effect pulling down the reputation of the SIPP sector. He would like to see fewer schemes
on offer and tighter criteria. Perhaps, he suggests, self-regulation will kick in during 2011 and SIPP providers, like mortgage providers, will take a much tougher approach to what they will approve. For Tolhurst, the future lies in
apartment hotels in year-round locations. Avoid destinations with a low
season, he says, avoid schemes that get poor occupancy rates, treat every SIPP scheme as a true business proposition. Agents and developers need
to work much harder to ensure that the industry only offers its
international property investor clients developments that are capabe of paying out their promised returns. The market should think about
offering more indirect holdings, he says, where a company has been set up to run the project.
He can also foresee a lot of SIPPs
moving into alternative investments where the fundamentals offer a better outlook than overseas property. For Howell, there has been an
increase in people using SSAS (Small Self Administered Schemes.) “More people have been talking to
“Avoid destinations with a low season, and avoid schemes that get poor occupancy rates”
me about SSAS schemes than SIPPs recently,” he says. Forthcoming government rules insisting everyone has personal as well as state pension cover will make this route more popular he says, and more and more small businesses will do things like selling their premises back to the company and paying themselves rental fees, the income generated going on to represent their pension fund.
www.opp.org.uk | FEBRUARY 2011
What is a SIPP?
• It should not be a residential unit (unless it is a portfolio of properties.) • It should not be for personal use. • It should not be co-owned by family or other related parties. (Investors can get round these issues, but the product needs to be cleverly designed.)
• It must be a good business proposition ... An investment that offers real long-term income and capital growth.
• It should not be a way to repackage a failing product. • It should be properly managed as a built property – good maintenance is essential.
• It should offer a clear exit strategy. • It shouldn’t require more than 33% LTV borrowings and must have clear, professionally drafted documentation.
• It should be backed by an experienced SIPP manager used to dealing with overseas real estate, and come from a developer experienced in dealing with SIPP products.
• It should not offer excessive commission rates. • It should be located in a good quality area with a year-round season (i.e. a “city break” apart-hotel.)
How can you achieve SIPP compliance?
1. The property should be commercial, rather than residential, according to English law. For example, hotels and hotel suites are commercial, whereas holiday apartments and villas are not. Apart-hotels may be commercial, depending on how they are managed.
2. There should be no trading. This means the investment should be passive, and the intention should be to hold it for at least 3 years.
3. The investment should not include ownership of moveable furnishings, which must be rented, even for a one-off payment.
4. There should be a clear means of selling the property in the event of death of the SIPP member, or the member needing to purchase an annuity.
5. Borrowing should be no greater than 33% of the value of the property.
6. Ask for a SIPP due diligence pack compiled by an expert, in which the expert explains why the scheme in question is SIPP-compliant. Ensure that the pack includes relevant documentary evidence.
Key terms ‘Investment’. The purchaser may be described as ‘investing’ in the property.
‘Property’. If the property is a villa operated as part of an apart-hotel, it should not be described as a villa, but rather as a ‘property’. Some SIPP providers prefer this usage for apartments also.
‘Kitchen area’. Some SIPP Providers do not like the kitchens in properties to be described as such. It may be better to use ‘kitchen facilities’ or ‘kitchen area’.
Be businesslike | in every aspect of setting up, marketing and and selling a SIPP Source: John Howell.
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