There continues to be a great deal of speculation about the strength of the property market. Research results often appear to show different views; is the market heading for a dramatic downturn or is the outlook good? Whatever the projections, many experts are bracing themselves for an enormous increase in momentum in just twelve months time, as investors in the buy-to-let market will be able to include residential property in their Self Invested Personal Pensions (SIPPs). The prospect of certain capital gains could prove to be incredibly attractive to many, particularly in an exciting city like Birmingham, which already presents a great opportunity to maximise investment potential.

Debbie Hyland, residential lettings manager at Bruton Knowles, explains why the changes in 2006 will mean changes to the market; “SIPPs were introduced in the early part of the 1990s to give investors greater control of all their assets under one pension structure, and enable them to take proactive decisions about their retirement funds. SIPPs allow you to invest in a wide range of assets including shares and bonds. April 2006 will see the list of permitted investments expand, adding in more items, such as residential property. This means that buy-to-let properties can become potential SIPPs investments. Considering the massive increase in the number of people entering the buy-to-let market in recent years, the idea that these properties could also provide pension tax relief if bought through a pension scheme could prove to be very popular.”

Existing landlords, however, should be aware that they will not be able to easily transfer their current properties into SIPPS to make them more tax-efficient. As with commercial property, only new purchases can be added to the SIPP portfolio. Furthermore, if the investor actually uses the property, the tax benefits will be negligible, and they will also be subject to a tax charge from the Inland Revenue.

Investors should do their homework in the coming year, however, as borrowing limits are set to change: limits currently stand at anywhere up to 75 per cent of the property value but will change to just 50 per cent of the pension fund value. So, whereas under the old borrowing rules you could have bought a property worth up to £400,000, if you had a pension worth £100,000, by borrowing a further £300,000, the new rules will mean that you can only consider a property worth up to £150,000 under similar pension conditions.

Debbie Hyland says: “It is worth noting that each pension provider will set out their own terms of what will and won’t be allowed within their arrangements. This will be based on the amount of risk and the amount of work involved, plus the returns that they will receive. To maximise the potential of a buy-to-let investment it is essential that investors purchase appropriate property. Here in Birmingham we are seeing continued optimism as more and more schemes come on line. The variety of choice for city living is enormous; whether it’s in the fashionable Jewellery Quarter, in the heart of the buzzing nightlife, or in leafy suburbs such as Edgbaston and Harborne. We are also working at Southside with Crosby Homes where potential landlords and tenants alike have the choice of high quality, well located apartments. It’s schemes such as these that will prove attractive for buy-to-let purchasers who are considering investing in SIPPs.”

For further details on residential lettings in Birmingham, please contact the Bruton Knowles lettings team on 0845 200 2580.