Buying overseas property using a SIPP

Proposed changes to self-invested personal pensions (SIPPs) will mean individuals managing their own pension will be able to use it to purchase property, including those overseas. The changes come into effect on April 6th 2006 – 'A-Day' – but the new rules can be taken advantage of today (more below).

SIPP holders will be able to gear up their purchasing power as the government will contribute up to 40p of every pound SIPP holders invest, and there is the opportunity to borrow 50% of the value of the SIPP. This means £150,000 of purchasing power can be achieved by a client making a net (after tax-relief) contribution of £60,000. Add to this the possibility of SIPP holders living or holidaying in their dream home in France – paying themselves rent – and the results are a predicted £8.5 billion investment in property through SIPPs, with £1.5 billion being spent on overseas properties, many of which will be in France(1).

The number of registered SIPPs is set to rise from around £120,000 to several million(2) as demand for French property soars. However, all the rules have not been finalised and we await the final government legislation (expected in September).

France is an excellent bet for SIPP investments as it represents a comparatively secure investment in a stable economy and, furthermore, many of our new build properties offer guaranteed rental returns. The current affordability of French homes combined with the boost in spending power due to proposed changes in SIPPs means even more people will be able to buy a place in France.

Given this predicted boost in demand for French property by SIPP holders, VEF has secured the selling rights to, what we think, are the most suitable new build and re-sale properties for our clients who want overseas property to form part of their pension fund, and we are offering SIPPs advice from qualified SIPPs and tax advisers. However, one of the most exciting developments is that with our new build properties, clients may be able to buy now and transfer the property into their SIPP tax-efficiently, after 'A-Day'.

Can I use the property myself?

Yes. The property can be used by the SIPP holder. The SIPP holder would have to pay her/himself a rent at the market rate for the duration, whether it be four-weeks a year when holidaying or all-year around if the SIPP holder lives in the property.

With New Build properties you can act now!

Our new SIPP-motivated clients will comprise younger investment-lead individuals wanting to take advantage of the new pension rules, and our more traditional clients who want their first – or even second – dream home in France.

Our SIPP specialists tell us that SIPP clients can purchase our best New Build properties now and, as they will not complete until after A-Day and are not considered residential properties, they can be purchased by a SIPP negating any possible capital gains tax implications.

This does rely, however, on the final rules regarding overseas property being as predicted.

To find out more about our new build properties, including our guaranteed-rental income properties, and SIPPs click on the links in the left-hand column; alternatively call VEF in London on 020 7515 8660.

(1) The Times, 27th July 2005
(2) Property Investor, June/July 2005