Self Invested Personal Pensions SIPPs - Aparthotel Investment - SIPP - SIPPS - SIPP hotels - SIPP investments

Aparthotel Investment
46 Barton Arcade
Deansgate
Manchester
M3 2BH

T: +44 (0)844 800 6536

Apart Hotel room property investments may be purchased within a pension/SIPP, directly or through a SIPP syndicate. They offer an interesting, and potentially more profitable alternative to an annuity purchase upon retirement.

Buying Apart Hotel Rooms within a SIPP / Pension is specifically permitted as a property investment, unlike direct residential property investment. Due to their income generation characteristics it is well worth considering the use of Hotel Rooms in pension planning for higher net worth clients, either as an immediate income generator or as a deferred income generating investment for future pension planning.

At retirement, the decision as to how best to draw retirement income from a pension fund is an important one.

Upon retirement, the pension investor usually has to use all or part of their pension fund to buy an annuity, which is irrevocable and subject to annuity rates dependent upon factors such as age, interest rates and any additional benefits such as indexation. In general terms, annuity rates are higher the older a person is because future life expectancy is lower

An alternative for pension investors who do not want to purchase an annuity and prefer to keep their funds invested in retirement, living off the income generated by these investments, is 'income drawdown'. This facility can be continued to age 75, following which an annuity can be purchased or transferred to an 'Alternatively Secured Pension' (ASP), which means that the pension fund can remain invested, providing an income for the retiree. The level of income that can be drawn under an income drawdown situation can be varied, and is subject to a maximum income allowance that is calculated using tables prepared by the Government Actuaries Department.

Apart Hotel room property investment is a fully managed, hands off, high-yield, modest-risk asset class that is an ideal income drawdown investment. Hotel rooms are widely regarded as a superb turnkey investment product that are fully managed for the investor and require very little involvement.

Buying a hotel room via a pension is relatively straightforward provided you use an experienced and competent pension provider. Vision Developments have partnered with pension providers who are competent and very cost-effective in property investment if you encounter any difficulties with your present pension provider or financial adviser.

You need to make sure that your pension is fully funded for the purchase. This means ensuring there is enough cash to carry out the purchase other than any finance being provided. It is only when the pension is fully funded that the pension trustees are likely to permit the purchase to go ahead.

Mortgages for private buyers are available to pensions on a limited basis according to HMRC rules. These rules permit a pension to borrow 50% of its net assets prior to the property purchase and this can mean that a small pension could borrow as little as 33% of the property price. For example, if the pension had £77,000 of net assets within it, then it could borrow an additional 50% or £38,500 to then purchase a £115,500 property (costs ignored for purposes of simplicity).

The good news is that the net assets within the pension have come after tax relief and, for an upper rate tax payer, they will have only made a contribution of 60% of the net assets with the remaining balance having been contributed by the taxman, HMRC. In the above example, the £77,000 of net assets would have been made up of a net contribution by the investor to their pension of £46,200 with the remaining £30,800 being made up of tax relief. In other words, for every £1 invested into a pension for an upper rate taxpayer with a suitable amount of tax to reclaim, they are achieving £1.66 of assets within their pension after the tax relief. The investor could look at this in a different way and say that they purchased the £115,500 property with just £46,200 investment, a further £30,800 contributed by HMRC out of their tax bill already paid, and then a further £38,500 of loan. Specific circumstances vary and you should seek professional advice on your pension fund situation.