Learn how to make the most of your under-performing pension plan

WHAT IS A SIPP?

SIPP stands for Self Invested Personal Pension. They are personal pension wrappers in every sense of the word, but have the added advantage that you, as the investor, have complete control over the investment strategy and investments contained in the pension plan offering individuals more freedom of choice than conventional personal pensions. They allow investors to choose their own investments or appoint an Independent Financial Adviser to look after them.

HOW DO THEY WORK?

Personal pensions are usually provided by insurance companies and they often limit your choice of investment to a number of investment funds normally managed by the insurance company. A SIPP should be viewed as a tax efficient wrapper into which you can invest almost any type of financial asset. Although a SIPP may be provided by an insurance company, it can also be provided by specialist SIPP administrators.

The insurance company or administrator will establish the SIPP wrapper which will receive all the tax advantages that are enjoyed by a standard personal pension. Once the SIPP has been set up, you invest your lump sum (or in some cases regular contributions) which initially will be placed in a cash account. In conjunction with an investment adviser, a balanced spread of investments will be purchased, using the capital in the cash account. The list of permitted investments is very wide but includes:

UK and international company shares

UK and international government and company debt (gilts and corporate bonds)

Collective investment schemes such as unit trusts, pension funds, investment trusts

Commercial property

Overseas Commercial property

Deposit funds and currency

Commodities

Futures and options

Warrants

Derivatives

There are some types of assets which, although not strictly banned, may not be tax efficient for all pensions but which otherwise could be of interest to SIPP investors, such as residential property, works of art and antiques. Any growth or income on assets in your SIPP is free of tax, and any money you pay in to it qualifies for income-tax relief. This is where investments advice is crucial and a trusted advisor necessary.

IS A SIPP SUITABLE FOR ME?

This question can only be answered after consultations with a suitably qualified pension's adviser who will analyse your circumstances taking into account your investment risk profile. In general, however, SIPPs are more suitable for investors who:

Require significant flexibility in their pension planning

Like to be in control

Want to take a hands on approach to planning their retirement

Have specific investment adviser that they would like to manage their portfolio

Have specific ideas with regard to investment that cannot be met through investing in an insurance company fund.

Most SIPP contracts have relatively high ‘minimum contributions levels’, which means they will appeal more to higher earners and those with significant capital built up in other existing pensions that can be transferred.

There are certain fees involved in establishing and running a SIPP and these are normally explicit. You can expect to pay an initial set-up charge, annual plan fee, initial charge on the investments that you purchase annual management charge on those investments. In addition to this, you should expect to factor in a charge for any advice that you receive in conjunction with setting up the SIPP and the associated investments.

HOW CAN I INVEST IN A PROPERTY VIA A SIPP?

One of the attractions of SIPPs is that they can be used to invest and develop commercial property, such as offices, industrial units or shops. Your pension fund does not even have to be large enough to buy a property outright as you can borrow up to 50 per cent of the fund’s net value; (it is important to bear in mind that the costs of buying and managing a property in a SIPP can be fairly hefty. SIPP providers typically quote a fee per property purchase and there will also be legal and valuation fees to pay. Additionally, on-going annual management charges will be payable). It must also be noted that it is not possible to invest directly in residential property via a SIPP, although a commercial property with a residential element such as a caretaker’s flat may be permitted. An alternative for those who want to invest in residential property may be to do so via property syndicate or collective fund. These schemes are allowed within SIPPs providing they have at least 10 investors and own at least three different properties worth a minimum of 1million GBP in total. Not all SIPP providers will currently accept these schemes and before investing you should seek solid advice from you chosen Independent financial Adviser. Other property-related schemes which may be available within a SIPP are buy-to-let hotel room investments in the UK. It has been suggested that similar schemes abroad including ski chalets may also be suitable but some leading SIPP providers still feel this is a grey area.

Find out the level of borrowing, as this will increase the risk and the amount you may have to pay for the maintenance of the properties as well as the costs to be covered when there are ‘void’ periods between lettings. Most importantly of all, you should find out your options for selling your investment.

By far the greatest demand for property investment within a SIPP is from small business people who want to buy their own business premises. Changes to the pension rules in April 2006 mean such purchases are now possible even if the property is already owned by the investor or someone connected to them.

Buying your own business premises within a SIPP can have several tax advantages. The rent paid into your SIPP is free of tax because it is a tax deductible expense. There will be no capital gains tax to pay on the property when it is sold within the pension fund and if you die before age 75 or before you start drawing your pension, your beneficiaries can receive the proceeds of the sale of the property free of inheritance tax.

By far the greatest demand for property investment within a SIPP is from small business people who want to buy their own business premises. Changes to the pension rules in April 2006 mean such purchases are now possible even if the property is already owned by the investor or someone connected to them. Buying your own business premises within a SIPP is free of tax because it is a tax deductible expense. There will be no capital gains tax to pay on the property when it is sold within the pension fund and if you die before the age of 75 or before you start drawing your pension, you beneficiaries can receive the proceeds of the sale of the property free of inheritance tax.

As the trustee, your Independent Financial Advisor will have the final say what should go in your pension.

SIPPs have the same tax advantages of normal pension plans. In simple terms, this allows an investor to benefit from generous tax relief provided from the government on their contributions; a tax payer will receive a boost on their contributions depending on their tax rate.

A basic rate UK tax payer investing 800 GBP a year would get a further 200 GBP paid in by the government into a SIPP of their choice. A higher rate tax payer, using the same contribution would get a further 533.33 GBP. In effect this means that a basic rate tax payer gets an automatic 25% return on their contribution whereas a higher rate tax payer gets an immediate return of 66.67% return. Even in the most dramatically poor financial markets this represents a huge benefit for UK tax payers.

As SIPPs allow investment in a wide range of available options, it is an excellent tax efficient way to maximize growth.

MAK Property Partnership offers a range of products that have been approved for investment via a SIPP. If you would like information on these products please feel free to view our various opportunities.

Please note MAK Property Partnership does not offer financial advice. We strongly recommend clients seek independent financial advice, regarding the suitability of investing in any of our projects, to reflect your own personal circumstances.



This document was prepared by Smith Osborne Associates who are Independent Financial Advisors regulated by the F.S.A

For the latest in outstanding, SIPP compliant, investment opportunities visit our website at: http://www.makproperty.com

Fractional Ownership; Low Entry, Great Returns

Ask yourselves, where can you buy property in the local housing market for a fraction the cost of a house or apartment which offers the following guaranteed returns and benefits?

Luxury property at low costs?

Sell at any time?

4 weeks annual usage (personal or rentals)?

Make substantial capital appreciation?

Generous rental returns GUARANTEED?

Enjoy a larger, more lavish property than you would have purchased outright?

Well, the answer is Fractional Ownership!

Not to be confused with the widely dreaded timeshare options, in a Fractional ownership you actually own a fraction of the property; so when you decide to sell you have a physical asset to sell, you have the bricks and mortar, which gives you the realistic opportunity of making profit – in a timeshare you are paying for the right to stay in ‘your’ property for periods of time over the year; which isn’t exactly attractive when trying to sell...

Fractional ownership is an amazing opportunity where several unconnected buyers can safely combine their resources to collectively own a property. This innovative ownership formula provides complete investment, legal and tax benefits of property ownership which are passed through to you, or your heirs, and may be sold at anytime. The fractional opportunity also offers the reassurance of less initial outlay for a property that you are likely to only use for a maximum of one month a year. Also, as you are only buying a part-share of the property, you can afford to purchase a more lavish and opulent property than you could fund outright. For investors looking to spread their funds into as many different properties and markets as possible, as well as for those seeking a luxury home-away-from home, this is the perfect option.

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