Assetz® News - Sipps announcement may lead to boom in holiday homes

Sipps announcement may lead to boom in holiday homes

6th December 2005 |

With the announcement that self invested personal pensions (Sipps) will not receive immediate tax relief for residential property investments, it is believed that many people will instead look abroad for holiday homes.

It was widely expected that the pre-Budget speech would provide confirmation of the policy that would allow people to use Sipps to buy a second home or even fine wine, so the government's U-turn has caused some unrest amongst property investors.

Keith Astill, managing director at UCB Home Loans, told easier.com that the government's announcement had been badly managed.

"If it was regarded as a bad idea, it should never have been proposed in the first place," said Mr Astill.

"I'm a little perplexed about why we have had almost two years of announcements regarding the rule changes allowing people to put residential property into Sipps, and then four months before it comes into force the whole project is shelved," he added.

Mr Astill did stress, however, that the government backtrack would not cause any real damage to the long-term health of the buy-to-let sector, although it is likely that some individuals who had originally planned to take advantage of Sipps in April will now be considering other options including Exempt Property Unit Trusts (EPUTs).

Conversely, some experts have started to speculate that the new prohibitions may in fact lead to a reaction from UK residents who will choose to buy holiday properties using their own money.

"This decision might have the opposite effect to what the government intended. It could see more people buying sunbelt homes with their own money and low cost euro mortgages, rather than putting the purchase through a Sipp and boosting their pension," said Terry Walker of Spanish specialists, PropertyInSpain.Net.

"Spain with the biggest share of the second homes market could see an inrush of new sales from the start of next year as UK buyers focus on the equity growth and lifestyle benefits rather than their tax and pensions," Mr Walker continued.

Stuart Law, Managing Director of Assetz plc, a leading property investment adviser, disagreed with this comment however, saying "With property funds like ours now on the market and the Chancellor confirming that they are perfectly suitable for SIPPs, and what's more is that they can borrow normal levels rather than the ridiculously low 50% of net assets suggested previously for direct investment, investors have a much safer and more diverse investment via a fund than buying directly a single property. We applaud the removal of direct residential investment and are sure the tax incentives will drive many people to SIPPs and to our funds rather than buy themselves directly."

One of the key points being considered at the present time is that investment in residential property through a pension scheme will still be available to people using a property investment fund such as those launched by Assetz last week, in agreement with the government's long-term ambition to establish real estate investment trusts.

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