Despite not making it into George Osborne’s speech, the full Budget statement announces that the government is to consult on allowing Self-Invested Personal Pensions (SIPPs) to invest, albeit in a limited way, in residential property.
Despite a brief proposal from the last Labour government to allow it, SIPP rules have always prohibited investment into residential property, except in very rare and exceptional circumstances. However, it now appears that the coalition government are considering allowing SIPPs to invest in residential property, where it is the result of a commercial property conversion.
The thinking behind the proposal seems to be, that it would allow derelict or underused commercial property to be turned into much needed residential property.
The Budget document says: “The government will explore with interested parties whether the conversion of unused space in commercial properties in high streets and town centres to residential use could be encouraged by amending Investment Regulated Pensions Schemes rules.”
The document continues: “Any amendments would need to be consistent with sound public finances and the Government’s wider pensions strategy.”
SIPP provider reaction
The reaction to the news has been mixed, with many SIPP providers cautiously welcoming the possibility of SIPPs being allowed to invest into residential property in a limited way.
Andrew Roberts, Partner at Barnett Waddingham, said: “Opening up pension investment rules to allow commercial properties to be developed into residential would reduce unnecessary red tape that plagues such projects at the moment, current rules require SIPPs to sell on developments before they become habitable and so would be good for the property and pension sector.”
Andrew continued: “I would suggest a simple test such that pensions can own converted properties but have to dispose of them before they are leased out, and that members cannot occupy them. A clear statement should be made on whether a series of developments would constitute a trading activity, which is taxable even within a pension wrapper.”
“If the Government is looking again at pension investment rules, it also makes sense to change rules to allow pension scheme properties to make use of renewable energy such as solar panels and wind turbines, as current rules discourage installation of these.”