As the authorities continue their quest to raise as much tax as possible from the UK property market many are now starting to ask whether you should be allowed to hold your home within your pension fund. When you bear in mind that many people are not able to climb aboard the UK property ladder because of ever increasing prices, could this be a working solution?
Pension fund restrictions
Pension funds are not able to invest directly in residential property and there are even greater restrictions when involving the underlying pension member or their immediate family. These restrictions have been in place for many years and while Gordon Brown introduced light-touch taxation on pension income, which has cost the pension industry billions of pounds, it is still a very useful tax vehicle for long-term pension fund investments.
When you bear a mind that you can acquire property of any nature in a limited company, which you may own, is there really a difference when looking to buy the same in your pension fund? The one major problem is that if there was a dispute then effectively you would be fighting yourself (as the tenant) although in reality it would be the pension fund (the landlord) executives looking after your funds. Aside from the potential for fraudulent activity when dealing with your own property/home is there any other valid reason why residential property is not allowed in pension funds?
Squeezing prices high
While the authorities are reluctant to openly discuss the acquisition of residential property within individual pension funds, there are obvious potential repercussions for prices. If you can imagine the billions of pounds of pension fund money which could pour into the UK property market this would push prices even further beyond first-time buyers. Also, the likelihood is that those unable to climb aboard the UK property ladder may not have sufficient pension assets to take advantage of any potential regulatory changes.
In effect we may end up in a situation where the relatively wealthy middle classes and above are able to take advantage of various tax breaks forcing prices further beyond those looking to enter the market.
Is it fair?
There are a number of specific investments which are not allowed in an individual’s pension fund for a number of reasons which include relatively high risk assets and assets with a potential conflict of interest/fraud. However, when you bear in mind the ongoing pension changes within the UK which will allow a greater amount of funds to be taken out of a pension fund on the first day of entitlement, and used for any purpose, does this argument really stand its ground?
It is also worth noting that the government has promised time and again to increase the number of newbuilds across the UK but has failed to deliver. The ongoing alienation of private equity funding within the UK property market has not gone down well and pension funds might be a potential source of future funding in this area?