myfinances.co.uk

Britons are ready to invest billions of pounds after pension changes make it easier to add residential property to their portfolios.

From April 6th next year (A-Day) new opportunities for investment could boost both the ailing property market and address the pensions gap, the Property Investor Show finds.

On A-Day new rules come into force making it easier to buy property as part of a self-invested pension plan (SIPP), currently a SIPP can only be used to invest in commercial property (with a few small exceptions), but after April 6th residential property, both in the UK and overseas, can be invested with accompanying tax relief.

A survey of property experts reveals that over £6.5 billion is set to flow into property through SIPPs in the first year after the changes.

This could increase the UK's annual private pension contribution by seven per cent.

"The changes on A-Day are going to give a lot more flexibility to pension investment," said Nick Clark, managing director of the Property Investor Show.

"The housing market has long been attractive to investors and being able to use SIPPs to buy property is likely to encourage more people to look at investing more substantially in their pensions, and benefit more from doing so," he added.

"In particular, the ability to invest a pension in overseas property is going to encourage many people to take advantage of some of the countries where property prices are still seeing rapid growth, which could substantially boost their funds. Additionally, with the flexibility to gear properties in a SIPP, investors will have more opportunities to maximise their returns."

But not everyone is as enthusiastic about the possibilities that the new rules present.

Stephen Harper, managing director of pension and property specialists Millfield Fountain, commented: "A-Day brings with it massive potential for the housing market through the huge amounts of money it will bring into the market, both in the UK and overseas. However, as with any investment, it is essential that investors do their research and make sure they are dealing with an expert in pensions as well as property.

"SIPPs are the biggest bandwagon in the property and personal finance sectors of the moment, and this inevitably leads to a lot of people trying to get involved who don't fully understand the area.

"Buying property with a SIPP is not straight forward, particularly when buying international property where there are separate tax and legal issues to take care of.

"For example, although SIPPs are tax-free, many countries do not recognise the exemption status of trusts and so you could still be liable for tax. However these problems are solvable to a degree, providing you use an absolute expert."