Monday, August 01, 2005

SIPP's could boost the housing market?

LONDON (Reuters) - New rules which would give investors tax breaks if they invest their personal pensions in property could boost housing market demand by 8.5 billion pounds or 5 percent from 2006, a study showed on Monday.

From April next year, Britons will be able to invest up to 215,000 pounds in self-invested personal pension (SIPP) plans in residential or commercial property, at home or abroad, and obtain full tax relief.

A higher-rate tax payer could then buy an apartment in the south of France, or a cottage in southwest England, for 200,000 pounds and it would cost 120,000 pounds, with the government making up the rest.

According to research from leading independent financial advisor (IFA) firm Hargreaves Lansdown 37 percent of current SIPP investors are interested in using their pensions for property purchases.

With 140,000 existing SIPP contracts, many opened by high-net-worth professionals, this could result in nearly 52,000 additional pension property transactions at an anticipated average value of 195,000 pounds, according to the SIPP Hargreaves Lansdown survey.

So a total of 10 billion pounds in extra capital flows could be trying to find a home in bricks and mortar in Britain and overseas from April.

As 85 percent of those surveyed said they are planning to buy property in Britain, total domestic housing market transactions of about 174 billion pounds (2003 level) a year may be boosted by 5 percent or 8.5 billion pounds, the firm said.

A big majority of SIPP property investors -- 79 percent -- are planning to put money into buy-to-let properties, followed by 42 percent for holiday homes. Just 14 percent propose to invest in their own principal residence.

The rental income and capital gains on the property going back into the SIPP is tax-free and can be used to pay-off the mortgage.

Some 32 percent of sipp respondents said they are planning to use their SIPPs to invest in overseas property, with Spain the most popular target closely followed by France.

Under the new rules, borrowing of up to 50 percent of the value of the pension plan to invest in property is allowed and 47 percent of those surveyed planned to increase the value of their pension contributions specifically to buy real estate, with 75 percent proposing to borrow within the scheme itself.

The survey took place in June and July, 2005 and consisted of 614 questionnaires completed by members of the public who had expressed an interest in investing in property via a SIPP and also a telephone poll of 180 randomly selected Hargreaves Lansdown SIPP investors.

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