French Leaseback: SIPP purchase

WHAT IS A SIPP?
The self-invested personal pension (SIPP) is a flexible, highly tax-efficient personal pension comprising of investments you choose yourself.

Unlike a traditional Personal Pension which is tied to an insurance company that dictates where you can invest, makes charges which can be hard to justify and upon your retirement steers you towards an increasingly expensive annuity, a SIPP offers the freedom to choose and manage your own investments and hence your own pension fund.

SIPPS AND LEASEBACKS
-Why should I incorporate a leaseback property into my SIPP?
It has been possible for some years now to put leasebacks into SIPPS, an option which has been very popular with investors seeking to profit from France’s position as the most popular tourist destination in the world by purchasing property here. Buying a leaseback property and placing it in a SIPP allows an investor to profit not only from the substantial tax advantages proffered by this type of pension but also the tax incentives offered by the French government to encourage the purchasing of property for tourism purposes under the leaseback scheme.

> The tax advantages of SIPPs
Each payment you make into your SIPP is boosted by basic rate tax relief from the government with those paying higher rate taxes able to claim as much as 40 % tax relief (although restrictions will apply to additional rate tax payers from 6 April 2010).
In real terms this means that you pay less for your property, for example a high rate tax payer wishing to invest £100,000 would only pay £60,000.

Any income generated by your SIPP is tax-free meaning that any rental income you earn through your leaseback is also tax-free.

Capital gains tax is not payable on SIPP investments so when you sell your property you will not have to pay capital gains tax.

> Tax incentives to those purchasing leaseback properties in France
Tax incentives for buying leaseback properties include:

- A 19.6 % VAT rebate on the price of the property, paid to the property owner upon completion
- Capital gains tax exemption after 15 years
- Minimal tax on any rental income in France

PURCHASING OPTIONS
For those wishing to purchase a leaseback property to put into their SIPP there are different options available to suit every budget:

1/ Buy now, SIPP later:
Purchase the property in your own name and transfer the property into your SIPP at a later date (tax relief payable upon transfer).

2/ Classic:
Purchase the entire property using funds from your SIPP.

3/ Joint purchase:
Purchase part of the property using funds from your SIPP and part in your own name (which can be financed by a personal loan).

4/ SIPP and mortgage:
Purchase the property using your SIPP and take out a mortgage on the rest with mortgage repayments normally being covered by the rental income. As much as 50% of the net value of a SIPP can be borrowed to increase the funds for your property investment. For example, a fund that has a value of £150,000 can be increased by 50% or £75,000 to make a total fund of £225,000 available to invest in property.

NB With options three and four you will only benefit from proportional tax benefits according to what percentage of your leaseback is in your SIPP

WHAT HAPPENS TO MY LEASEBACK PROPERTY THEN?
Once you have purchased your leaseback property from the developer you sign a lease contract with a management company who will take care of your property for you.

By investing in a French Leaseback property you will benefit from:
• The peace of mind brought by guaranteed rental income for the duration of the lease
• No management or maintenance hassles
• No running or insurance costs
• A secure rental income which can be used to meet any mortgage repayments

Always look at the quality of the management company when choosing your leaseback to ensure you will receive a secure income from it.

THE BUYING PROCESS
1. Identify and reserve a leaseback property with a deposit
2. Set up your SIPP and arrange finance
3. Complete paperwork for the transfer

Example of a French Leaseback that you can incorporate in your UK SIPP: French Leaseback in Les Gets