SIPPS: BUYERS BEWARE Y
ou may be vaguely aware of SIPPs, but not fully understand how they can be relevant when you are investing in a home overseas. With access to funds and
lending so constrained these days, there’s been a fair amount of chatter in the trade about ‘SIPP compliant” investment products and you may well have seen adverts for properties including the entreaty ‘buy through your SIPP’. First up, if you are buying a holiday home for your own usage, you’d be best advised to forget about SIPPs in this context. Why? Let’s explain by starting with the basics.
What is a SIPP? A SIPP (Self Invested Personal Pension) allows you to control how you invest the assets of your pension fund. They were created in 1989, were simplifi ed in
2006, and are now much more widely available than they once were – and under the auspices of the Financial Services Authority (FSA). Whilst once the preserve of a small, wealthy
minority, it is believed that now 800,000 UK consumers have one, and they are increasing with double-digit growth each year. The basis of having a SIPP is that you decide where to invest your money, have much greater
42 AIPP CONSUMER GUIDE
choice in what you invest in and can see exactly what the charges are for having and operating your own pension. Thus, their diversity and their self-management facility differentiates them from company and personal pension plans. An FSA regulated SIPP provider (pension trustee) will administer the scheme on your behalf and SIPPs come in all different shapes and sizes – as in what the variety of SIPP providers will let you invest in. However you basically get the same tax advantages from HMRC that you would get through a personal pension, allowing your investment to grow tax-free. In other words, a SIPP is a tax-effi cient “wrapper” around your portfolio of investments, facilitating certain tax advantages.
SIPP limitations: private holiday homes However it is essential to point out that, although HMRC allow SIPPs to invest in certain types of commercial property they do not, unfortunately, allow residential property.
So you cannot get your pension to buy your own house in the UK or a holiday home somewhere sunny which you can live in or visit to your heart’s content free of charge! That said, there are a few caveats to this ‘no residential’ ruling that will allow investors to use their SIPP to invest in property that looks a lot like it, such
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