Student property and residential syndicates permitted in SIPPS

Amanda Jarvis

March 30, 2006

It is to be allowed within a syndicate of eleven or more members.

In Her Majesty’s Revenue & Customs (HMRC) Guidance Notes, the details of the definition and tax treatment of residential property within SIPPs were divulged last week. They are draft documents at this stage and are expected to become law as part of the Finance Act in July 2006.

The main points are:
– SIPPs can invest directly in dedicated student Halls of Residence but not individual flats that happen to be let to students
– They can also invest directly in hotels, residential homes, hospices and prisons
– They can invest in residential property so long as it is via a “genuinely diverse commercial vehicle”, or indirect investment. This includes UK REITs and Funds such as onshore Property Unit Trusts, as expected, but also residential syndicates of only 11 or more people.

The following limitations apply to indirect investments :
– The SIPP must own no more than 10% of the property
– The total asset value is at least £1 million, or at least 3 properties are held in it
– Syndicate members cannot hold any more than 10%
– No personal use of the residential property is permitted

Stuart Law, Managing Director of Assetz commented:
”This is fantastic news for pension investors. The Government has been sensible in permitting residential property that is of a true investment nature, and allowing people to supplement their retirement income with the proceeds of buy to let and residential capital growth, as well as more traditional commercial property that was already allowed.

“The residential syndicates proposed would be able to borrow up to 85% of the value of the property, as the SIPP would own a share in the syndicate but the syndicate itself would borrow using non-recourse lending, enabling investors to bypass SIPP lending limitations of 33% of the value of the property. Similarly our commercial property syndicates will let investors fully gear up their investment rather than limit themselves to 33% borrowing within the SIPP”

“This opportunity will be extremely popular with investors who understand the benefits of gearing.”

Property funds such as those recently launched by Assetz Fund Management are ideal for SIPP holders looking to invest in the residential market, with entry levels of just £5,000 meaning investors can diversify their portfolios.

David Wilkinson, IFA with Foster Denovo, said: “Since the Government’s last-minute change of heart in the Pre-Budget Report, we have spent an enormous amount of time and energy exploring ways to permit more interesting investments into a client’s pension fund. We are very pleased to be involved in advising upon the suitability of the Assetz funds for our investors.”

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