Why SIPP’s won’t save the industry

There have been many saviours of the overseas property industry since things turned sour in 2008. Fractional is one such trend which may eventually save the day, although sales so far have been disappointing.

SIPP’s or Self Invested Personal Pension Plans are another. Make your development pensions eligible (for British citizens), tap into a network of independent financial advisors (IFA’s) and fly to an island in the Caribbean where you can sit back and watch the money come in!

Unsurprisingly, it’s not that simple and the hard truth is that for the majority of you reading these words, it’s not economically practical or legally possible.

There are huge benefits but the truth is that the rules are too restrictive for SIPP-compliant property to ever be a truly mass-market product.

In the first of a two part series, former IFA, Pam Prince outlines three questions you must answer positively before you take things further. Prince has just finished five months work ensuring her new development in Cyprus is SIPP compliant.

Next week, she will be providing practical tips on the details of making your development SIPP compliant.

1. Does the country where you are selling recognise UK Trust Law?

This is the most basic consideration. If the answer is no, then making your development SIPP-compliant is a non- starter. There is no real definitive list of acceptable countries but as an example Southern Cyprus, Portugal, the Caribbean and Brazil are on the ‘yes’ list.

There are many more on the ‘no’ list. Examples include Spain, Italy and Bulgaria. It is not allowable for UK citizens to invest directly in in property in these countries through their pension although they can of course invest indirectly through collective instruments like trusts.

2. Does your property have a commercial element like a hotel?

The UK government introduced this caveat as it feared losing billions in tax revenue if people began putting their homes into SIPP;s which are liable to inheritance tax and income tax in the case of buy to let.

SIPP compliant overseas property must have commercial element to it such as a hotel. The difficulty is that commercial property cannot be owned by overseas investors in some countries. A good current example of this is Turkey, where in principle it is an acceptable jurisdiction in terms of trust law but their own title deed restrictions prevent the ownership of commercial property, therefore creating a technicality that may or may not be possible to sort out.

3. Is your development big enough to make the economics stack up?

To make your development SIPP-compliant you need to enlist the help of a SIPP provider who will help structure your development into an investment product. The most well known examples are insurance companies like Prudential but these bigger players do not tend to deal with SIPP’s. Smaller, specialist companies like Rowanmoor Pensions, HornBuckle Mitchell are the companies you need to approach.

They will usually provide their services at no upfront fee if your development is big enough. Small boutique developments will often not provide them with enough potential business to make the economics stack up.

Pam Prince is co-director at Pure Cyprus Invest. For more information on their SIPP compliant development in Southern Cyprus or to find out what consultants she worked with, call Pam Prince on 01923 80 44 88 or email.

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