The Lemon Fool

Hi,

Hopefully I have the correct board.

I'd like to understand the general principles of owning residential property in a pension fund.

To help me understand the various issues connected with this I have set myself a theoretical analogy.

For the last three years I have been working through a financial recovery plan whilst at the same time hoping my mental and physical health remain robust. I haven't done too well with my health over prolonged periods before this. That aside I've been back at work for four years now and will be in a position to commence operation "ave it" in the next six months. The three previous operations "hope", "oh yes" and "now we're cooking with gas" all went well and I am good to go for the final stage.

I am not in any rush to buy stuff for my pension. I'd like to have a bit more understanding of options first.

Example of House Purchase

House costs £100K
Rental income £6K pa.
No purchase tax (below £125K)

• Option 1. Purchase house with no lending facilities - what happens to the rental income? Can it be put into a stocks pension without being taxed? - a sort of rollover investment
• Option 2. Purchase house with 75% LTV loan - pay off loan through rental income and additional monthly "pension" contributions(these being from personal income, do they attract tax rebates for higher rate tax band at 40%? Approximate value (including tax rebates of income available for this is £20K + £6K rent))

I realise the above is highly simplistic but hopefully someone can be kind enough to point me in the right direction to understand more please. Thank you

AiY

Snorvey wrote:You can't have residential property in a pension.

Even if you could have residential if the SIPP costs were akin to those for commercial property a lot of the SIPP charges would seriously eat into the desirability.

There is imho a tipping point with individual property costs where enveloping them in a pension makes sense but £100k is imho really too low per unit when you work your way through the typical fixed (non percentage) SIPP tarrif of charges that could be levied.

We threw a parade of 9 shell retail units into a group of 4 SIPPS, costs as a percentage were high, sorting agreement to do any works on them was a pain (x quotes required), legal process to sell in was long winded and it was not a particularly satisfactory way to operate if you are more used to just getting on with things vis a vis property letting- it likely has its place but you must make sure you appreciate all charges at the front end.

We did it to move a project away from an existing lender post the 2008 banking crisis only because we had a gun at our head to refinance (we had access to funds in pensions but nowhere else) but given a choice it would not be the vehicle I would ever use as my first choice to buy property.