Published on 14 December 2005 at 12:32 pm
Filed in » New Property Investment Choices for British Investors
Now that the Chancellor of the Exchequer has effectively moved the property and pension planning goalposts, British investors are faced with a number of property investment choices and considerations to make if they are to profit and benefit from real estate as an asset class.
Because it has been decided that self invested personal pensions investing in residential property will not now receive taxation relief and that the retirement age in Britain will probably have to increase from 65 to at least 67, those who are in a position to save for their retirement are looking for the most tax efficient and profitable ways to save.
As property remains the most consistently profitable asset class over the longer term it also remains the most favoured asset class for those saving towards retirement.
The property investment choices British investors now have are at least clearer cut in light of the Chancellor’s pre budget report.
In terms of the changes to SIPP rules announced by Gordon Brown, those who considered investing in residential property via a self invested personal pension scheme could still benefit if they hold the property within the pension plan for an extended period of time because although the initial investment would be subject to a 40% taxation charge, once the property asset is within the SIPP structure it will not be subject to capital gains tax, and any income earned from rent for example will not be subject to income tax.
A domestic alternative for an investor is to wait and invest in one of the new British Real Estate Investment Trusts (REITs) when the legislation leading to their creation comes into effect next year - although this will not be a tax efficient way to invest in property and save for retirement. For tax effectiveness the SIPP still outshines the REIT and so an investor might like to consider investing in a property based fund via their SIPP - such action is a tax efficient way to invest in property towards pension income and an excellent way for an investor to diversify across various properties and even property types.
The other alternative is to forget pension plans altogether and place money directly into property and a buyer considering this path of action could choose to target either the domestic buy to let market in the UK or join the thousands of people looking overseas for property investment hotspots where capital growth levels are strong, rental yields impressive and the scope for future gains sustainable.
Because house prices in the UK have risen above what the local market can afford to pay for them, experts predict that they are due a period of stagnation for the short term. This has restricted the numbers of property investors heading to well established and expensive markets like Florida, Spain and Portugal for example but increased the numbers of British investors who are examining the real potential in emerging property markets abroad.
Northern Cyprus, Bulgaria, Turkey and Morocco are all countries that are enjoying stronger levels of property investor interest with the majority of overseas buyers purchasing for investment purposes.
Whatever choices an investor makes they should be aware that the value of any investment can go down as well as up, that when investing directly in property anywhere in the world they should not do so without independent legal advice and that the sooner they begin planning for retirement the longer they have for any investments made to grow, appreciate and become most profitable.
