What SIPPs mean for buying in France

FROM April next year people will be able to invest in residential property both in the UK and abroad, through their pension funds.

Under the new rules higher-rate taxpayers will only have to find 60 per cent of the purchase price of a property as the government will meet the remainder through tax relief.

And to make things a little sweeter any income raised through the property, for example holiday rents, can be added to the pension pot and allowed to grow tax-free.

Not surprisingly people see these Self Invested Personal Pensions (SIPP) as a way to buy a home abroad, or place an existing property into a SIPP.

Many providers also think that this rush of people could prompt a bubble in house prices, so are SIPPs the next big thing?

“I am pretty sceptical about the impact SIPPs will have on the property market in France as really they are more suited to the purchase of commercial properties,” said Stuart Law of Assetz, a property investment company.

“We get a lot of people asking about SIPPs but really you need a lot of money for them to be successful.”

Another problem Stuart Law sees is that payments into the SIPP in the form of rent have to be at the market rate so when there is no rent coming in, the owner has to continue paying.

“It is not worth buying a holiday home and putting it into a SIPP if you are not going to let it regularly, charge the going rate and market it effectively,” he said.

“You will still have to pay into your pension and this could affect people who are only able to let a place for a couple of months in a year.”

Another potential problem is how the tax authorities in the country where someone has bought a place will view the property and there can be no under declaring of figures, as SIPP administrators have to comply with the law.

“You could just be adding another inch of paperwork to the purchase,” Stuart said. “Because as anyone who has bought a home will know there are plenty of forms to complete in the first place.”

There are still a lot of questions about how SIPPs will impact on buying a property in France but for those who are keen to use one then a team approach may be the way forward.

“Something you might see are people joining together as a syndicate to buy into larger property developments or commercial premises abroad,” explained Stuart.

“We already do this with commercial properties in the UK and what people are getting is the chance to invest in a larger project, for less cost and potentially less risk.”

There are still many outstanding issues about SIPPs and although April 2006 may seem a long way off it is going to take much of this time to answer many of these questions.

Websites:
Assetz France
Directgov – pension changes