Tax dodge of the week: A way around the new pension property rules

As of 6 April next year, the borrowing rules for property held within a pension become less generous, says David Budworth in The Sunday Times.

At the moment, a Sipp can borrow up to 75% of the value of a commercial property to fund a purchase; after ‘A-Day’, you will be allowed to borrow just 50% of the value of your actual fund.

But Consortium Investment Management has found a way round the rules – provided you make the correct preparations by April 2006. Consortium’s scheme is based on a special type of fund called an exempt property unit trust. To use this, you need to find a lender willing to advance you the money and you have to have taken professional advice. Essentially, you use your pension fund to buy a trust and any property purchases then made using the trust, including those within a pension, fall outside the borrowing rules.

Because an exempt trust is a collective investment scheme, there need to be at least two unit holders (the other one could be your spouse). Because exempt property unit trusts are not regulated by the FSA, participants have to be certified as ‘sophisticated’ investors (eg, have experience investing in unquoted firms or private equity), or to be using an FSA-authorised financial adviser. As Consortium’s charges are high, their scheme is most cost-effective for purchases of £1m-plus. Call 020-7437 0200 for more information.


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