proposed property based pensions

[Foley]

I understand that next April it will be possible to invest in a "Buy to Let property" pension plan and get tax relief. Does anyone have any details on how this will work in practice, e.g. will this type of pension plan have to be set up through a professional organisation such as a Life Assurance company or can one buy a property and apply to Inland Revenue to have it approved as a pension plan? I would be most grateful if any one can throw any light on this matter. A.E.H

[King_Maker]

There are various options, and I would suggest you contact an IFA who is well versed in pensions.

A possible option is using a SIPP (Self Invested Personal Pension). Depending on your circumstances and investment strategy etc, I would avoid the normal Insurance companies, as their charging structure, penalties etc can be very expensive (especially for the larger funds). Paying a fee is likley to be cheaper. Some SIPP providers only charge ~ £500.00 p.a. - although specialist services would cost extra, but only if used.

You also need to consider whether you need to do anything prior to "A" Day (6 April 2006).

[bob.fraser@towrylaw.]

A pension plan can only be established by an approved provider.
As King Maker says, a life office would not normally be the most cost effective way to implement your requirement. The SIPP would be the normal solution, and you should use an independent financial advisor (IFA) to guide you. Make sure that the one you choose has the new Chartered Insurance Institute "CF9" qualification - this means that the IFA has been examined (and passed!) in the new pensions legislation.
Basically, you can use your existing pension plan to invest in a B2L property, subject to you having enough assets to pay for it. If not, you will be able to borrow up to half the value of the property.
If you do not have sufficient in your pension plan, you will be able to contribute up to 100% of your annual salary into a pension, and you will obtain tax relief (subject to a maximum contribution of £215,000).
If you wish for more detailed advice you may contact me.

Bob Fraser
Certified Financial Planner

[King_Maker]

Bob,

Am I correct in thinking that HMRC have still not given any guidance on the parameters for the *company* to deduct (say) £215,000 for Corporation Tax purposes?

[bob.fraser@towrylaw.]

Are you meaning what they will accept as being "wholly and necessarily"?

[bob.fraser@towrylaw.]

King Maker, my current understanding is that HMRC has simply stated that corporation tax relief will be granted when the contribution is paid "wholly and exclusively" for the purpose of the business, and that this will be decided by the Local Inspector of Taxes. Guidelines will be issued to the Inspectors and these will be made available to pension practitioners and accountants.
However, I am not aware that this guidance has yet been issued and it is currently unclear what level of contribution will be tax relievable.
I would suggest that in practice this is more likely to be a problem for directors who are looking to maximise pension contributions whilst minimising salary - with additional remuneration being paid via dividends, or directors looking to maximise pension contributions for low paid spouses.
The problem will be that the pension contribution will be able to be paid, but the tax relief may not subsequently be forthcoming.
Once I am aware of the guidance notes, I shall publish them on the Tax Investments site.

Bob Fraser
Certified Financial Planner

[King_Maker]

Bob,

Yes, it is the "wholly & exclusively" aspect which I am concerned about.

Thank you for confirming the lack of HMRC guidance at the moment.