How to Combine Property and a Pension With a SIPP

Buy-to-let is a popular property retirement investment for landlords, often at the expense of more formal pension savings. But there is a way to combine the two despite strict rules about holding residential property in a pension. 

The retirement plan for property investors is a self-invested personal pension or SIPP, but the same rules apply to ISAs for more accessible savings. Regardless of the tax wrapper, two rules apply for investments:

  • Individual homes are barred
  • Special rules apply to 'tangible moveable property'. This covers a range of investments, such as art, antiques, fine wines, cars, boats and helicopters.

The rules aim to stop pension savers from gaining tax relief on assets that could provide personal use. 

The good news is a host of other investments, from stocks and shares to cash or gilts, are allowed. These allow a combination of property and pension savings. 

Shares in Real Estate Investment Trusts (REITs) are traded on stock markets and combine residential property investment with cash contributions into a SIPP or ISA. REITs must pay 90% of the rent back to shareholders as dividends. 

Other property trusts and funds allow pension savers to take a stake in commercial property. At the same time, business owners can hold their premises in a SIPP – providing no residential property is involved. 

The penalties for breaking the residential rule are steep – starting at 55% of the value of the investment. 

Like any investment strategy, diversification is advisable, and banking on buy-to-let and property in a pension is risky if the market drops unexpectedly. 

Another pitfall is cashing in an investment may take some time as property can take months to sell, and the cash is tied up during that time.

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