Can I Use My Pension To Invest in Property?
The short answer is yes. But you need to structure it properly.
In the UK you generally cannot take money out of your pension until you are over 55
There may also be some restrictions on pensions controlled by the NHS and similar schemes for other government employees.
It should be pointed out that any money you spend on a property is no longer available to support your retirement, so you will need to ensure that you have enough left in your pension to look after yourself in later life.
However, in 2017, most pensions are getting paltry returns and investing in property could be a good way to get better returns.
If the decision to invest is done properly, then it is possible, with the right structure, to take money from your pension and return it back into your pension with an uplift; so taking money out does not mean that you leave the pot empty.
Whilst it’s not illegal for a pension scheme to hold residential property as an asset, the tax consequences effectively debar it as an option. So most pension funds are suitable for commercial property purchases. This can include Land, leasehold property with a term longer than 50 years, care homes, pubs and a variety of other properties.
If not structured properly the purchase price and acquisition costs become what is called an ‘unauthorised payment’ with charges likely to be 55 per cent or more of the purchase price.
Alternatively, once you are 55 you can, in principle, take money out of your pension and use it as you wish
A big issue to consider if you decide to go down this route is income tax.
Most pension arrangements allow you take one quarter of the value of your pension pot as a tax-free lump sum and you could certainly take this money and put it towards a house for your children for example.
Unlike a personally owned investment property, the pension fund is exempt from Capital gains tax - payable on the disposal of a property - and any rent your pension receives is exempt from income tax
In addition to these tax advantages any personal contributions paid to a pension to fund the purchase will attract tax relief at your highest marginal rates and employer contributions are treated as a business expense so they are tax deductible and exempt from National Insurance.
If a property is elected for VAT then pension schemes could also reclaim and VAT payable on the purchase price and the rent received.
You could convert your pension into a SSAS
What is a SSAS pension?
A Small Self Administered Scheme is a pension set up by a limited company for the benefit of its directors and beneficiaries.
As the members are also the trustees, they control investment policy and how the scheme should run.
The benefits of a SSAS pension:
A SSAS is registered with HMRC and there are valuable tax benefits given including the following:
• Assets grow free of Capital Gains Tax
- Your fund on death can be passed down to your family free of Inheritance Tax
- A company can contribute up to £500,000 from its profits and mitigate corporation tax in the year of contribution
- You as a Member and Trustee have more freedom to direct the investments of the scheme and have control of the scheme bank account ( you are in control we help you find a solution)
- Loans to your limited company can be provided from your funds (within certain limits)
- Loans to a third party
- Ability to take advantage of the new pension freedom rules introduced 2015/16
In summary, there may be things that you can do, but taking large sums out of your pension pot at 55 if it's a SIPP would be likely to generate a large tax bill and is unlikely to be the best approach.
If you turn the SIPP into a SSAS, then you can be much more flexible.
Like all large financial decisions, take proper formal legal and pension advice from a registered advisor.
This and many more subjects will be expanded on in the Raising Angel Finance Course in Peterborough. For more information contact; karlenepartridge@progressiveproperty.co.uk
Ray is a shareholder in www.AngelsDen.com and Property Angels Den where investors are introduced to entrepreneurs or developers seeking finance.
If you have a proposal click here: Application form page: http://www.RaisingAngelFinance.co.uk/investment-application-form.html
If you are interested in becoming an Angel Investor, Click here; www.WestStreetCapital.co.uk or : http://www.becomeanangel.com
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