ARTICLES 
Buy-to-get a pension
Article by Phillip Inman * with excerpts,The Guardian, Saturday April 23, 2005
New rules give property investors 40% tax relief.

Expect a renewed rush into buy-to-let property next year when new pension rules come into effect. From April 2006 they will allow pension investors to gain 40% tax relief when they invest in property through "self-invested personal pensions". It means that properties worth £200,000 can effectively be bought for £120,000 by higher-rate taxpayers using funds in their pensions. Many investors are known to be remortgaging their main residence to release cash and use it to purchase property.

But others question why buy-to-let investors should obtain tax relief, when first-time buyers can't even afford to get on the first rung of the property ladder.
Already property companies are linking up with financial advisers to sell off-plan apartments to investors when the new rules are in place. But London letting agent Ludlow Thompson this week issued a warning.

Stephen Ludlow, one of the directors, says: "The tax breaks gained from investing through a Sipp should provide a tremendous boost for residential property investors, but buying new-build might not represent such a good way of securing your future retirement pot." There are an estimated 120,000 Sipp plans, mostly held by Britain's wealthier investors. Most pension experts believe they are only worthwhile for higher rate taxpayers who enjoy a 40% tax break on their pension contributions.
Slogans such as "retire rich with a property pension" have been appearing on financial websites, on company literature and, increasingly, in radio adverts.

Claims focus around rule changes which mean savers can use their pension to:

Buy property at a 40% discount.
Never pay capital gains tax or income tax on their property profits.
Cut the income tax on their entire salary or business profits to zero.

At least that's if they use the rules to the extreme. Many anti-poverty campaigners have watched incredulous as the government first proposed, then pushed through, pension rule changes that allow the wealthy routes to avoid tax by investing in a wide range of assets.
Safe way to the good life

Robert, 50, is a corporate lawyer earning 180,000 GBP a year. He wants to buy property abroad with his self-invested personal pension (Sipp) from next year.

He also wants to put some of his existing portfolio of buy-to-let homes in his pension to shelter future gains from tax. He already has 500,000 GBP in his pension pot. This year, he will put his entire salary in his pension and live off his 50,000 GBP of savings.

Robert uses 400,000 GBP to buy two of his properties and £100,000 to buy two beachside homes in Bulgaria. His pension has paid the 400,000 GBP for the buy-to-let homes into a trust for his grandchildren.

VERDICT: Robert is pretty safe. The new pension rules, bizarrely for a Labour government, allow him to use his pension cash to maximise his gains and shelter huge sums from the taxman.

He has 10 years until he retires, by which time the buy-to-let flats, combined with his other pension savings, should generate enough cash for him and his wife to live on comfortably.

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