Property in Pensions… Investing in bricks and mortar
Many people are mystified about pension products (particularly bearing in mind the bad press of management fees and the vagaries of the Stockmarket) but are more reassured about the solidity and long term nature of bricks and mortar. What are the advantages of investing your pension in property?
- A pension scheme wrapper free of income tax and capital gains tax.
- The ability for your business to pay rent into your own pension scheme rather than a third party landlord.
- The ability to borrow upon your pension scheme property (up to a maximum 50% net assets test).
- The ability to sell all or part of your own property to your pension scheme (and hence liquidate cash at times when Banks are often still loathe to lend).
- The ability for certain pension schemes to lend to your own business.
Property should always be seen as a medium/long term asset and its lack of immediate liquidity is sometimes seen as a disadvantage. That being said the results of many property investments have been stunning over recent years. For example a recent client purchased a property in 2001 for just over £1m and recently sold this for in excess of £2m. The rental income during the intervening 14 years was enough to pay off the 50% bank lending as well as have a net yield of over 11% per annum!
The upfront costs of purchasing and selling property (stamp duty land tax, professional costs etc) should never be ignored and therefore the medium/long term view always taken.
Even where pension assets may be modest these can still be aggregated (e.g. between spouses, business partners etc) to set up joint ownership of a property between pension funds. This has been used frequently to liquidate cash for SMEs.
Despite various government suggestions in the past residential property is still not an authorised pension investment (with a few very limited exceptions). However it is still possible to partly convert commercial property into residential property or obtaining a residential use planning permission without falling foul of the HMRC pension regulations.
It should also be noted that the recent budget proposals for more strenuous taxation on buy to let properties will make investments in commercial property through pension schemes even more attractive.
Trethowans are well known as one of the country’s leading pension property specialists advising most of the leading pension providers. Importantly the pension providers and indeed IFAs rely upon Trethowans expert guidance to lead them through the maze of HMRC pension regulations and come up with innovative solutions to structuring pension property transactions.