Finance

Is the SIPP problem that bad?

by Ian Williams FCA TEP, Campbell Dallas Chartered Accountants

My last article was written in anticipation of the new residential property SIPP rules that were to have come into effect on 6 April 2006. Residential property developers had opened their wallets, in anticipation of the stampede that was to sweep across Glasgow and Edinburgh by the new band of buy-to-let SIPP investors. As my article was going to print Gordon Brown, having been given lots of helpful advice from the likes of Standard Life, changed the rules and took residential well and truly off the SIPP menu. All subsequent commentary would suggest that the residential prohibition is likely to remain so, for some years ahead.

With the excitement having turned to despair, particularly for residential property developers, could this present a new set of opportunities for property investment outside the SIPP ballpark.

First, forget SIPPs for a moment, but do look at residential which, in certain places, is on its knees. A period of market adjustment is in process and for those of you still eager to pursue the residential route there are lots of bargains to be had and do not forget, outside the SIPP environment, you have more freedom and certainly more flexibility in what you might do. Also, consider office and commercial properties as they carry excellent tax incentives.

The second opportunity involves SIPPs, in as much as, post-A-Day, it is possible to pay premiums (i.e. invest) up to 100% of your salary or, if you own your own business, up to £215,000 each tax year. If you have been reluctant to invest in pensions, having seen your friends weeping post-9/11, it is perhaps now opportune to take advantage of the new rules post-6 April 2006. If you are, say 50 years old, your business is successful because over the years you have invested your profits back into growth, why not consider a pensions investment of say £200,000 for each of the next three years. The investment achieves tax relief for you if you are self-employed or employed and tax relief for your company if it pays the premium for you. Over three years, you will have built up a substantial fund, of at least £600,000 in a SIPP, which is under your control and watch it grow, having taken professional advice, over the period to produce an excellent asset for use at your retirement.

If you contrast the post-6 April 2006 with the pre-6 April 2006, where it took many years to build-up value because of the limited ability to pay pension premiums, the new rules look extremely generous for those looking to build pension funds over a short period of time.