SIPPs: Concern mounts over Harlequin Property

Amid mounting concern over Harlequin Property, the FSA (Financial Services Authority) has written to SIPP providers asking them to confirm the exposure to the scheme within their SIPPs (Self Invested Personal Pensions).

As part of their “on-going supervisory work into financial advisers” the FSA has asked SIPP providers to confirm the extent of their exposure within five working days.

A number of SIPP providers, including Suffolk Life, Liberty, Talbot & Muir and LV= were quick to take to the social networking site, Twitter, to confirm they had no exposure to Harlequin Property investments.

Greg Kingston, Head of Marketing at Suffolk Life said: “The wealth in pension funds has proved an irresistible target for some investments like this, and some SIPP providers are likely to have significant exposure; how much exactly may be difficult for some to answer.”

“The decision of some SIPP providers to allow investments like this is, amongst others, one of the key reasons behind the FSA’s demand that SIPP providers start to hold significantly higher capital reserves. They’re especially concerned about providers that were less then independent and linked to the promotion of these investments.”

Harlequin Property

According to reports around 3,000 people in the UK have invested around £250 million into Harlequin Property.

Worryingly the Mail on Sunday recently reported that some people had actually remortgaged their homes to invest into Harlequin. IFAonline are now reporting that Harlequin Property is having “severe problems” making payments to investors, which could cause cashflow problems for investors relying on income payments to meet the cost of their mortgage.

The full story about missed payments can be read on IFAonline by clicking here .

FSA Harlequin alert

In January the FSA issued an alert about Harlequin Property, which said: “We have seen an increasing number of Self-Invested Personal Pension (SIPP) schemes whose underlying investment is in an overseas property purchased through Harlequin Property, a UK based overseas property sales agent that is not regulated by the FSA.”

The alert went on to warn advisers that the suitability of any overseas property investment must form part of their advice and that it is unacceptable to simply recommend a SIPP in isolation.

When assessing the suitability of any overseas property investment and in particular those via Harlequin Property the FSA expects advisers to:

• give consideration of how building work is progressing on the various sites and any factors involved in reported delays to completion
• establish precisely how their customers’ funds will be used during the construction phase and the terms of their purchase agreements
• make a full assessment of all publicly available information about the overseas property investments through Harlequin Property and on all the parties associated with these investments

Dangers of investing in overseas property

We are regularly approached at Investment Sense by individuals wanting to invest in overseas property. We have also been approached by property firms, including agents for Harlequin Property themselves, asking us to promote their schemes.

We always decline such invitations and always warn people wanting to make such investments in no uncertain terms about the risks they face, which include:

• Lack of regulation, any investments into overseas property are not regulated by the FSA, leaving investors exposed if things go wrong
• Potentially high costs and commissions, which will reduce the return paid to investors
• Breaking HMRC rules, which could result in a tax charge of up to 55%
• Higher risk and a lack of diversification

Greg Kingston again: “Owning a property overseas, where different laws and legal practices exist, will always be complex – building one even more so. We’ve seen too many examples of schemes that risk becoming taxable property or which seem to be set up specifically to circumvent some sound UK laws such as limiting SIPP borrowing to 50%. For a provider like Suffolk Life, if we can’t understand or accept the risks of the investments put to us then we turn them down. Turning away the wrong type of business is likely to be good business in the longer term.”

You can read more about the risks of investing in overseas property by clicking here.

Concerned? Get in touch

Have you invested in Harlequin Property or bought property overseas in your SIPP?

If you have and are concerned our teamof Independent Financial Advisers are experienced in advising SIPP investors on their options and are here to help.

If you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk