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Self-Invested Personal Pension (SIPP) Property Purchase Calculator - work out the maximum property purchase under a SIPP.


Click here to launch the calculator

The purpose of this calculator is work out the following factors:

  • The maximum purchase price of a property via a Self-Invested Personal Pension, based upon the current value of your pension fund(s), on the post 06/04/2006 pension rules.
  • In conjunction with the maximum purchase price, the maximum loan that can be raised via the pension plan in order to fund the property purchase.
PLEASE NOTE: On 5 December 2005 it was decided to disallow tax-relief on residential property investment within Self-Invested Personal Pensions after 6 April 2006.Residential Property now joins a list of prohibited investments applicable to all 'self-directed' pension plans, and additional tax charges may be applied upon the value of the investment. This makes holding residential property within a SIPP extremely undesirable. However, investment in Commercial Property remain unaffected.

You will need to input:

a) The transfer values of your current pension plans / schemes (or fund values if they are already invested within a SIPP).
b) The maximum contribution that you can make this year, or next year.
Due to the pension simplification rules, the rules on maximum pension contributions are now somewhat simpler than in previous years. If you cannot prove any earnings, you can make a contribution up to £3,600 per annum (as tax relief is given, you effectively pay a net contribution of £3,600. Otherwise, you can contribute up to 100% of your earnings in any one year, and employers can contribute up to £40,000 per annum on behalf of an individual [although whether such large contributions will get tax relief may ultimately rest on the decision of the local Revenue inspector].
This will work out the maximum figure that could be used to purchase a property using your SIPP.

SIPPs and Property Purchase - The background.

Currently, pension schemes can only purchase commercial properties. Under the previous rules, a Self-Invested Personal Pension could borrow up to 75% (on commercial terms) of the value of a property. As an example, if you had a Self-Invested Personal Pension with a fund value of £100,000 you could have borrowed up to £300,000 to purchase a commercial property valued at c. £400,000.
[Do not forget to take into account charges such as surveys, solicitor’s costs, stamp duty, etc, which are still applicable].
However, after 06/04/2006, this has all changed. The maximum borrowing limit is restricted to 50% of the value of the fund, not the property itself. This makes a significant difference, because the same fund of £100,000 is now restricted to a maximum purchase of £150,000.
However, if we look beyond the hype, doing so may not be as straightforward or desirable as initially imagined.
  • The investor does not own the property; it is owned by the pension fund / pension trustees.
  • Any rental income or capital receipts from the sale of the property cannot be taken out of the pension fund , in the form of income, until you retire.
  • In addition, all mortgage premiums, along with the costs of buying or selling the property, must be taken directly from the pension fund.
  • This means that a reasonable amount of capital needs to be tied up in the pension fund in order to meet these expenses.
  • And there are other costs to consider. As the owner of the property, the pension trustee may also insist on a professional managing agent.
  • These costs come on top of the set-up and annual maintenance charges that will be imposed by the administrator of the pension. Generally speaking,a SIPP containing a property is usually twice as expensive to run as one without.
  • This again makes this type of investment only suitable for those with generous funds that they can afford to lock away for a significant period of time, or those who are able to let the property back to their own businesses.

Contributions "In Specie" into a SIPP

Some people may want to pay pension contributions after April 2006 not in cash, but by transferring an asset. For example, an individual or a company that owns property may want to transfer it directly into a pension scheme. This is called making a contribution "in specie". The Revenue has advised that under the new rules, contributions in specie will not automatically gain tax relief. However, they add that if the company "promises" that a contribution of a certain value will be paid, and then makes the contribution in the form of an asset, then tax relief will be granted. It is not yet clear whether an individual could make this work. Also, transferring a property to a pension scheme in this way would not escape a Stamp Duty charge.
The figures generated by the calculator are only for guidance purposes, and are by no means guaranteed.

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