Home rules

Under the new “A-Day” pension rules, it will be possible to do a traditional equity release scheme in which the homeowner increases their income by remortgaging or selling part of their property. They will then be able to can then put the money raised by the sale or loan into their pension fund making full use of generous income tax reliefs on pension contributions. This is considered by many advisers as likely to provebe the most popular equity release scheme under the new regime.

But homeowners could just as easily sell all or part of their home to their pension fund and release some equity from their property in that way. If you sell your main residence to your pension fund and continue to live in it then you will have to pay a commercialmarket rent to your pension fund. Alternatively, you could pay a benefit-in-kind tax to the Revenue, but . Under this latter option, you must pay tax of at least 40 per cent of the market rent, although with the proceeds going to the taxman rather than your pension fund.

Gregor Johnston at certified financial planners Fitzallan cites the example of a homeowner selling their £500,000 home to their pension fund. In this scenario, aAssuming a generous rental yield of 7 per cent a year, they would expect to pay rent of around £35,000 per year to their pension fund. This rent could then be drawn from the pension fund but it would be subject to income tax.

Under the new rules, it is possible to sell part of your home to your pension scheme, althoughsome financial advisers believe such an arrangement could raise problems. “It is unlikely that Sipp providers will be happy to share legal ownership with a private individual since this could easily create conflicts of interests, so the option to sell, say, half of the asset to your pension fund, and retain half yourself, will probably not be available,” says Johnston. “In other words it will be all or nothing.” Sipps will probably only allow ownership of residential property to be split between other Sipps, usually ones operated by the same provider, as is the case with commercial property at the moment.”