6th June 2005

Alarmed by over-optimistic reporting on the advantages of the new investment rules for residential property in Self Invested Pension Funds, SIPPs, the Association of Residential Letting Agents has assembled an experts' overview of this new direction for the Buy to Let market.

This analysis of the present position with SIPPs and REITs, Real Estate Investment Funds, is published in the June issue of Agreement, the magazine for ARLA member letting agents. However, simultaneously it will be made available to the general public on the ARLA website.

Following last month's closure of companies taking advantage of investors in residential property, ARLA, as the lead professional body in the Buy to Let market, believed it to be vital that expert views were made freely available and as widely as possible.

The overall view of the expert contributors on the likely benefits to holders of SIPPs came down heavily on the side of caution.

Arbuthnot Pensions & Investments Ltd., Baker Tilly Financial Services, Premier Pension Services - a division of Jardine Lloyd Thompson, Fitz-Gibbon Residential and The Council of Mortgage Lenders all pose a large number of questions to be answered before an investor considers placing residential investment property into their pension plans.

In addition, it is also clear that many of the answers will have to wait until the detailed regulation and guidance have been published by the Treasury and the Inland Revenue. These answers will have implications for mortgage lenders and pension fund trustees borrowing on behalf of their investors. It is also pointed out that at the same time as Buy to Let investment through a SIPP becomes possible next year, so more restrictive borrowing rules will also apply to this form of pension packaging.

Other health warnings from the experts include avoiding a pension fund that is full of bricks and mortar as tax free cash cannot be given as bricks, any more than the actual pension should be paid in bricks.

The experts also warn that, in planning to place investment property in a SIPP, investors must be careful to avoid tax charges on benefits in kind or falling foul of European Union rules on property ownership, especially if a SIPP is used to fund a holiday home.

SIPPs have been growing in popularity but it was estimated that there were only some 102,000 schemes in 2004, up from 80,000 in 2002. Although the number of investors these schemes represent is a small proportion of the total Buy to Let market, the fear among some experts is still of an unrealistic boom in Buy to Let on the back of the changes to the SIPPs rules.

However, as Andrew Heywood for the Council of Mortgage Lenders points out, there is little evidence that Buy to Let has increased volatility in the housing market, and SIPPs style property investment will remain relatively illiquid.

Said Adrian Turner, Chief Executive of ARLA, "The recent closure by the DTI of companies offering potential investors expensive Buy to Let seminars, or inviting them to join dubious buying syndicates, underlined the need for ARLA to ensure that expert advice circulates quickly and freely. Believing it to be incumbent on ARLA, as the lead professional body in the Buy to Let market, to ask the real experts to explain to the investor-at-large how to approach new investment opportunities in residential property, we have been very gratified by their response.

"I very much hope that anyone interested in SIPPs or REITs will visit our website or contact an ARLA member letting agent or a member of the ARLA panel of Mortgage Lenders before making any decisions. It is in their interest to do so."

As well as SIPPS, the other new development for next year is the long-awaited advent of REITs, Real Estate Investment Trusts. Professor John Glascock, the Grosvenor Professor of Real Estate Finance at Cambridge, and Andrew Heywood, the Senior Policy Advisor for the Council of Mortgage Lenders, both demonstrate that the overall effect of REITs on the Buy to Let market will probably be limited, even as they will have a positive impact on the private rented sector.

The full SIPPS and REITs supplement can be found in a downloadable format on www.arla.co.uk/btl/sipps.html 

Home | Agent Search | Information | Buy To Let | Contact | News & Press
Training | Members Area | Privacy Statement and T&C