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Landlady can Sipp easily in Bulgaria

Published: 5th January 2005

This article appeared in The Daily Express.

THE PROBLEM

Bulgaria’s sunny Black Sea coast has worked its magic on adventurous Shirley Boot. The 48-year-old publican was not just taken with the beauty, but also the investment opportunities in the former Warsaw Pact country.

Property prices are less than a tenth of the UK’s but if, as is likely, Bulgaria joins the European Union in 2007, costs will soar. So pioneer Shirley from Stoke, Staffordshire aims to be ahead of the game and has set her heart on buying a bar. In the short term, she may get someone to run it for her, but her long-term plan is to move there.

To realise her dream Shirley has to stump up the cash to buy the property. The good news is she has a special type of personal pension, a self invested plan (Sipp), which allows her to have commercial property as part of pensions savings.

But Shirley’s plans hit a major hitch when her Sipp provider said it would not handle an overseas property. “The provider will consider only UK based purchases,” she says, “but I am convinced Bulgaria is the right move for me, so what should I do?”

THE SOLUTION

Shirley needs to change her self invested personal pension provider to a company that allows overseas property, even in a more unusual location such as Bulgaria, says independent Sipp adviser Michael Fairweather. Pointon York Sipp Solutions will do this there and there will be no transfer penalties.

Shirley opted for Sipp because it offers more freedom than a conventional plan and control is with the saver. Rather than being restricted to a pension firm’s own funds, she has access to a wide range of investments – including commercial property -which is not allowed in a standard pension.

The downside is charges are higher and most people need an independent financial adviser to help them. As a result, Fairweather reckons savers need a fund of at least £50,000 to make a Sipp worthwhile. A Sipp can also be used to borrow up to 75 per cent of a business property’s price, with money in the Sipp used to fund a 25 per cent deposit.

Any income from rent is then paid tax free into a pension. Increases in the value of property are free of capital gains tax and there is 40 percent tax relief on Sipp contributions for higher rate taxpayers. From April 2006, rules for buying property will change to allow residential purchases, although borrowing power will be trimmed to just 50 per cent of a Sipp fund.

“It is important to find the right kind of Sipp to suit you,” says Fairweather.
Shirley can use £20,000 from her Sipp to buy her café bar outright. “This had to be cleared by the Inland Revenue – it has confirmed the bar is a commercial property and therefore qualifies,” adds Fairweather. “Properties like this often have rooms above, so it is important to get clearance on eligibility from the revenue.”

Fairweather also counters recent criticism that Sipp savers who have large amounts of cash sitting in their funds – rather than shares or other assetts – face poor returns. “To take advantage of the new rules next year, allowing residential property sales, maybe now is the time to start converting other assets into cash in preparation,” he says. “Otherwise, should the market value of other investments drop during the next 16 months, they will be exposed and have less cash to spend when they come to buy – it’s a calculated risk but an issue worth considering.”

There was an initial fee of £250 plus VAT to set up Shirley’s new Sipp, and £900 in annual charges with £500 due to the inclusion of overseas property.

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