New buy to let tax advantages?
Discussion
Have read somewhere that new rules allowing investment properties to be held in self-invested personal pensions (Sipps) are to be announced in April. Investors will qualify for 40% tax relief and avoid capital gains tax when they sell. Where can I find more info please? and can someone explain in easy language.
What is happening is that, for the first time, properties can become the investment vehicle for personal pension funds. This means that the "premiums" paid into the fund will attract the usual tax reliefs which pension contributions enjoy i.e. tax relief up to the individual's highest rate of tax. Whether there are anu other reliefs available on the property itself we don't know yet - such as exemption from Capital Gains Tax.
We are still awaiting how the full details of this new scheme will work and what types of limits will be set (as no doubt there will be all sorts of restrictions involved as there always are, espoecially with Gordon Brown's budget provisions).
We are still awaiting how the full details of this new scheme will work and what types of limits will be set (as no doubt there will be all sorts of restrictions involved as there always are, espoecially with Gordon Brown's budget provisions).
I think it is very likely that rental income WILL be tax exempt on these properties AND that they will be CGT free on disposal. There will be loads of restrictions on what you can do with these properties to prevent you from using the cash generated oother than to fund your pension.
These are the basic rules under which current personal pension schemes operate and to treat property based pension schemes differently would defeat the purpose of the exercise.
These are the basic rules under which current personal pension schemes operate and to treat property based pension schemes differently would defeat the purpose of the exercise.
Eric Mc said:
I think it is very likely that rental income WILL be tax exempt on these properties AND that they will be CGT free on disposal. There will be loads of restrictions on what you can do with these properties to prevent you from using the cash generated oother than to fund your pension.
But - surely, if you could "buy to let" tax free so to speak, people will just stop declaring it as a taxable income and just put all the money aside for when they retire? Effectively losing all tax revenue from most buy to let properties in one move, can't see them doing that. I accept that a lot of BTL people are using the rent to pay the mortgage but the others (plenty of them) who use it as an additional income would be laughing.
This in turn would make BTL property (typically cheaper properties) prices go up and make it even harder for first time buyers.
Maybe you are right, but I have to say I have my doubts.
That's the whole point of pensions - it's putting money aside for retirement. If you can dip in and take money out of the fund as and when you feel like, it's not really playing the game. Lots of people already call their property investments their "pension". At the moment, it is actually an extremely tax inefficient way of providing a pension for yourself - the entire "gain" (subject to the normal CGT allowances) and all the rental income being taxed completely along the way.
The government aren't being particularly altruistic here. They are scared still of the looming pension crisis and they are trying to encourage any schemes that will entice people to put money aside for when they retire. Obviously, things might not have been so desparate if Gordon hadn't decided to raid the existing pension schemes back in 1998.
Not everyone wioll want to lock up their property in a pension scheme either. In fact, I would expect that the vast majority of properties will remain outside such pension schemes.
>> Edited by Eric Mc on Sunday 27th February 14:36
The government aren't being particularly altruistic here. They are scared still of the looming pension crisis and they are trying to encourage any schemes that will entice people to put money aside for when they retire. Obviously, things might not have been so desparate if Gordon hadn't decided to raid the existing pension schemes back in 1998.
Not everyone wioll want to lock up their property in a pension scheme either. In fact, I would expect that the vast majority of properties will remain outside such pension schemes.
>> Edited by Eric Mc on Sunday 27th February 14:36
The new SIPP rules allowing the purchase of residential property apply from April 06.
You need a substantial pension 'pot' to invest as fees are fairly high, also you can only borrow a further 50% to buy your property, i.e. if you want to buy a £100k investment flat you need £50k in your pension fund up front.
You need a substantial pension 'pot' to invest as fees are fairly high, also you can only borrow a further 50% to buy your property, i.e. if you want to buy a £100k investment flat you need £50k in your pension fund up front.
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