Can I Transfer My Pension Into Property? – The House Crowd
Can I Transfer My Pension Into Property?
“The quick answer is yes. Yes, you can transfer your pension into property. You either have to invest in commercial property or in residential property that’s being developed or built for the purpose of being lived in, as it’s not regarded as residential property in the traditional sense.”
Frazer Fearnhead, founder of The House Crowd and author of The Alternative Guide To Property Investment.
If you’ve ever asked the question ‘Can I transfer my pension into property?’, be reassured that you’re not alone. Even though it’s quite a common question, the answer is a little more complicated.
Even if you’re not actively looking to provide for your financial future, it’s more than likely you have a pension, especially since the introduction of automatic enrolment pensions. In fact, over 65% of people in the UK are now enrolled into some kind of pension scheme.
Property investment is often posited as one of the most lucrative means of preparing for your retirement. It’s something tangible, something you can physically see and something that has a reputation for withstanding the very worst recessions! This makes property an incredibly popular choice for those looking to provide for their financial future.
And unless you’ve been living under a rock (we wouldn’t blame you, it’s all doom and gloom these days!), you’ll be no doubt be aware that the average UK pension isn’t all it was cracked up to be. This is why many people are now looking for alternative ways of boosting their retirement fund. Naturally, this is where the idea of combining pensions and property came from. An asset that boasts the potential to earn lucrative returns paired with a scheme specifically designed to provide for your future, sounds great, right? It is great, but there are caveats.
Can I invest my pension in property?
When pension freedom was introduced in 2015 (as part of the 2014 budget) many thought they were free to take money out of their pensions and invest in anything they wanted, including property. Unfortunately, this isn’t entirely true.
Bear in mind that in the world of investment, property is broken down into a number of different classifications. This is important, especially as it may determine whether you can or cannot invest via your pension. Investment property falls into two categories:
- Residential properties: a property that may be leased. Can contain either a single family or multifamily structure, and is used for the occupation for non-business-related ventures.
- Commercial properties: property created for the purpose of retail, wholesale trade, hotel, restaurant, offices, clinics, warehouses etc.
So, while you can invest your pension money into property, it’s all completely dependent on the type of property that you invest in.
Can I buy commercial property with my pension fund?
Commercial property can be readily invested into via a traditional pension. This means that investors are able to put their money into land or property that exists for the purposes of generating a profit – shops, bars, restaurants, things like that. However, the situation becomes a little bit more complicated when it comes to investing in a residential property with a regular pension.
Can a pension scheme invest in residential property?
Investing in residential property via a traditional pension simply isn’t viable for many, due to the 55% tax penalisation, plus subsequent taxation on any capital gains made from your initial investment. This is where a Self-Invested Personal Pension (SIPP) comes in.
What is the difference between a SIPP and a personal pension?
A SIPP is a type of pension that has a wide range of investment choices. For example, you can invest in unit trusts, investment trusts and exchange-traded funds with a SIPP, but not a personal pension. They also tend to have fixed fees (rather than a percentage fee), which can make them cost effective if you don’t withdraw too often.
How does a SIPP work?
SIPPs are similar to personal pensions in that you can supplement your pension whenever you like, and the government with pay in an extra 20% in pension tax relief. The main difference is that you have more options with your SIPP providers.
How to use a SIPP to invest in property
If you want to start using your pension to buy property, you can do so by investing in a SIPP with a peer to peer property development company offering property investment opportunities. By working with specialised companies that deal with properties or facilitate property investments, you won’t be subjected to the same tax restrictions as before. This is in part because when you invest in residential property that’s being developed or built for the purpose of being lived in, it’s not regarded as residential property in the traditional sense. Land or buildings that are developed and then converted into residential property are not typically categorised as ‘residential’ throughout the build process – the acid test is whether whether the property is suitable to be used as a dwelling – if it doesn’t have a habitation certificate then in all likelihood it’s suitable for pension investment.
So, can I transfer my pension into property?
In short, you can with a SIPP. Before making an investment into residential property though, it’s important to think about who you’re going to invest with and how you’re going to invest.
With ever-increasing life expectancy, the UK’s general population need their pensions to work harder for them than ever before. It’s becoming increasingly important to consider investments that were once nothing more than an alternative to the mainstream.
Capital is at risk and rates are not guaranteed. Withdrawals may be restricted due to illiquidity. Investments are not covered by the Financial Services Compensation Scheme (FSCS). Please read our full risk warning.