Changes to borrowing limits coming into effect on A-day will significantly reduce the attraction of directly investing in commercial property, warns pension expert.
Mike Brown, head of pensions and retirement at Abbey for Intermediaries, says investing in commercial property is currently a popular choice for SIPP investors.
However, pending pensions legislation could change this considerably, he says.
At present, SIPP trustees are allowed to borrow up to 75% of the acquisition costs of the property, forcing the individual’s pension fund to provide just 25% of the value.
After April 2006, this borrowing limit will, however, be reduced to 50% of the value of the individual’s pension fund.
Brown says: “Commercial property has been a very popular investment choice for many SIPP members. The changing borrowing limits from A-day will significantly reduce the attraction of directly investing in Commercial Property.
For example, a member who has a SIPP worth £50,000 today could consider investing in a commercial property valued at £200,000. From A-day, the same individual could only consider a property valued at £75,000.
“The message is clear – if SIPP members are looking to invest in commercial property,” he concludes.IFAonline
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