The tax-friendly way to invest your pension in residential property

The strong returns predicted over the coming year (and beyond) is already alerting many to the benefits of investing in buy to let. Of course you can just purchase and let the property yourself. Indeed, this looks set to take off even further from April 2015 when pensioners will be able to gain full access to their pension pots rather than have to buy an annuity. But there is another way to take advantage of BTL’s returns without putting down a deposit and becoming a landlord. You can use a self-investment personal pension (SIPP) to invest in a residential property fund.

Many people think that residential property is an asset class they cannot access through their pension because there is a restriction on holding a buy to let property in a pension. But investment can still be achieved through a fund. And with a SIPP you can invest up to £50,000, attracting up to 45% tax relief (depending on earnings) and even carry back the allowance to increase the limit. But please always consult a professional financial adviser before making any commitments.

In a recent survey, the majority of Rentify landlords believed that institutional investment in the private rented sector would begin to have a significant impact on private individual landlords in around 1-3 years. Certainly, the last six months have seen a much greater push towards it. But the silver lining of this cloud could be more and better opportunities to invest in residential property funds. Not only that, but Paragon, the large and influential buy to let mortgage specialist, has called on the government to remove the restriction on holding residential property as an investment in a pension. A changing private rented sector, and changing attitudes towards it, means that this could gain traction. The Labour government did look into it in 2006, but decide against it. The changes to make it easier to invest your pension in residential property may now be on the horizon.

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