10 August 2006

UK indirect residential property ownership

If you want tax relief on a development investment you can now back a particular development.

Publication of the Finance Act at the end of July confirmed that indirect residential property ownership is permitted within a SIPP. So investors looking for a hands-off approach to residential property investment can now find eligible investments for a self-invested personal pension (SIPP). Developing can be much more profitable than a straight investment in existing property.

With most residential units sold off-plan, the risk to investors is reduced.

Developer funding involves providing equity to a developer in addition to bank lending, to finance a scheme. A developer typically requires 10% to 30% of the total scheme cost in cash, with the rest provided by bank lending. It is common to find developers with more opportunities than cash, which presents an opportunity for investors to raise the capital required and receive a priority return.

With the passing of the Finance Act a few days ago, investors can finally rest assured that indirect investment in residential property and development funding is permitted through a pension, allowing them to collect the returns tax-free within their Sipp.

Developer funding is an excellent way to access higher than average returns in the residential property market, by investing in the scheme right from the start and benefiting from a priority share of the developer’s own profits. It is also a totally hands-off investment choice, making it ideal for those who want to enjoy the gains of residential property without the involvement of buy to let

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