Published on : Tue, 25 Oct 2005 07:04GMT
by : Sadat Sayeed

LONDON - Come April 6,2006 or A-Day and investors will be able to commit residential properties to their self-invested personal pension (Sipp) plans. Investors are eagerly waiting for the big day so that they can start saving money on what will effectively be a second home or a holiday home.

But it is not that simple enough warn experts. “We have had some e-mails from companies with odd sounding names saying they are specialists in a certain area and wanting to offer our clients the benefits of their property services in Bulgaria or wherever,” observed David Baker, director of James Hay, the UK’s largest Sipp provider.

There is now hardly six months to go for the big day and there are now a plethora of property websites claiming to offer the best deals in places favored by British investors most notably Spain and Florida. “If they are UK-based we try to meet them. But if not it is difficult to know if they are responsible or rogues.

We can’t investigate them. We have no way of knowing whether this is true so how is the client going to know?” Baker commented. He has a point there in that innocent investors would get hoodwinked into parting with their money only to be saddled with a tax trap as it often happens in Spain.

The concerns about property packages that claim to be Sipp-friendly but do not advertise the pitfalls have been brought to the notice of the Financial Services Authority, but the regulator can only helplessly watch as there can be no concrete regulation until 2007, latest.

Lee Grandin, managing director of Landlord Mortgages says that prospective Sipp-property investors must be aware of the fact that a certain minimum amount needs to be present in their pension pot if they can safely invest in residential property via a SIPP, “You would need a pension fund of at least £80,000 and to borrow an additional £40,000 to purchase a UK buy-to-let property.

From anecdotal evidence, I really don’t think that many UK consumers have this sort of money either in their pension pot or their pocket.” Other analysts say that investors are advised to proceed in much the same manner as they do when buying a property at home when they venture overseas.