Having your cake and eating
- Using pensions to buy property

Pensions seem to have had such a bad press that many people prefer to invest in property instead. This gives them the control they want over their future but means that they sacrifice the tax breaks that a pension gives. The good news is that you can do both though using a Self invested pension plan (SIPP)

Usually if you purchase a property this must be done out of income after paying tax. With a SIPP, the taxpayer pays funds into it as pension contributions and therefore attracts tax relief. Funds that are in a SIPP can then be used to purchase a property.

Of course very few people will have sufficient funds to buy a property outright. In these cases the SIPP will borrow funds in the same way as individuals. Banks will usually lend up to 70% of the value of the property.

The SIPP generates income tax free by renting out the property. Often it is renting to a business owned by the same person whose pension it is. The business pays rent and gets tax relief on it whilst the pension receives it tax-free. Where it is proving difficult to raise funds to purchase the property, funds from existing pension schemes can be used.

The only bad news in all of this is that you cannot invest in residential property. Whilst the main reason for this is to stop abuses of the system, commercial property often offers a more stable return than the volatile residential property market.